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Amendments in the Finance Bill 2023 & Impact on investment in Debt mutual funds.. Should you invest?

Amendments in the Finance Bill 2023 & Impact on investment in Debt mutual funds

Today, The Finance Bill 2023 is passed with all the proposed 64 amendments! What came in as a shocker is ‘change in taxation wrt investment in mutual funds specially in debt category’.

The amendment says, “Mutual funds having less than 35% AUM in domestic equity to lose indexation benefit, to be taxed as short-term capital gains with effect from 1 April 2023.”.

Please refer below to get more clarity wrt changes in tax implications from 1 April 2023-

PARTICULARSCategory ICategory IICategory III
Equity Exposure Indian Stocks, ETF, & Equity Mutual funds0% to 35%36% to 64%65% & more
Short term capital gainsAs per the Slab RateAs per the Slab Rate( if redeemed before 3 years)15% (if redeemed before 1 year)
Long term capital GainsAs per the slab rate20% with indexation (if redeemed after 3 years)10%(if redeemed after 1 year) (on capital gain of more than  RS 1 lakhs)


Here, there are 3 categories are now applicable to understand tax implication on mutual funds.

To explain the above table simply, please refer below-

From 1st April 2023, mutual funds will be divided into 3 categories for the tax implication.

  1. A scheme which is holding 65% or more in equity= No change in taxation
  2. A scheme which is holding less than 65% but more than 35% in equity= No change in taxation
  3. A scheme which are holding less than 35% in equity= Change in taxation where short term capital gains & long term capital gains will be taxed as per income tax slab rate of the investor.

Yes, investment in debt mutual funds is distinguished due to this tax implication which will no more applicable from 1 April 2023!

It simply can attract investors to other fixed income instruments like bank FDs as the tax implication is now the same for debt funds too after 1 April 2023.

But should this be the sole reason to consider other debt investments & give less importance to debt funds?

You should not!

Every investment option comes with own characteristics. When we choose & invest in them together in suitable portfolio allocation, it gives us advantage of diversification!

Let’s check features debt funds & other debt investments have!


  1. Diversification:

When you invest, you should not invest in single investment option. Debt investment is also not an exception.

When you choose debt, you have many options like Bank fixed deposits, Post office investments, Bonds like RBI bonds, Corporate FDs etc.

Debt mutual funds too provide diversification. Other options mentioned above fall in ‘fixed income category’ where debt mutual funds provide your with ‘Capita Gains’.

For the purpose of diversification, debt mutual funds can still be considered as one option to invest.


  1. Safety:

While investing in debt, if you are looking at ‘Safety’ then option like bank FD is ‘insured’ upto RS 5 lakhs of investment together with interest earned. It is not completely safe.

Post office deposits do provide higher safety.

But, if you are ready to take risk & embrace market movements in your portfolio, then you can consider ‘debt mutual funds’.

  1. Liquidity:

Investor considers debt for liquidity! Money invested should be quickly available to him/her.

Debt funds do provide this liquidity like other options such as bank FDs.

  1. Flexibility:

When you need money invested back before a stipulated time period /maturity, if you have invested it in Bank FDs or post office deposits, then you need to ‘withdraw total amount invested’ with applicable penalty.

Debt fund give you a ‘flexibility to redeem the money as much you need’.  This way your remaining investment amount remain invested in the portfolio.

  1. Risk involved with investment:

All debt investments are prone to different risk levels. If we talk about bank FDs then they are subject to interest rate risks, re-investment risk, they are insured upto RS 5 lakhs of investment done.

Option like Post office FD is also subject to re-investment risk.

Likewise, debt funds re subject to market risks, credit risk & interest rate risk.


Changes in tax implications can go a long way! This time it is for debt funds, other time it can be subject to other types of investments too.

These ‘macro level’ changes are not in our control.

What an investor should do now?

  1. Stick to your Financial Plan. Talk to your Adviser for any doubt.
  2. Do not panic & change your asset allocation & investment made already.
  3. Do refer to above features before choosing any debt investment option.
  4. Do not ‘base your investment decisions’ around ‘tax implications’. It will make your ‘Personal Finance complicated’.

For any assistance & queries, please get in touch at

Contact ARTHA FinPlan for more details.
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1 thought on “Amendments in the Finance Bill 2023 & Impact on investment in Debt mutual funds.. Should you invest?”

  1. With so many changes happening it is really a wonder if the taxation which was supposed to be simple is again getting complicated.

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