AMC stocks under pressure; UTI AMC falls nearly 5 pc

Shares of asset management firms declined on Friday amid amendments to the Finance Bill changing tax treatment for debt mutual funds.

The stock of UTI Asset Management Company tanked 4.73 per cent, Aditya Birla Sun Life AMC declined 4.44 per cent, HDFC Asset Management Company fell 4.21 per cent, Shriram Asset Management Company dropped 3.21 per cent and Nippon Life India Asset Management dipped 1.29 per cent on the BSE.

The broader market also faced selling pressure as the 30-share BSE Sensex declined 398.18 points or 0.69 per cent to finish at 57,527.10.

The Lok Sabha on Friday approved The Finance Bill 2023 with 64 official amendments, including providing tax relief to some taxpayers opting for new tax regime, and removing long-term tax benefit for debt mutual funds to bring them at par with other interest earning instruments.

''The asset management industry was hit hard by tax changes and the elimination of the indexation benefit of debt mutual funds,'' Vinod Nair, Head of Research at Geojit Financial Services, said.

Asset managers termed amendments to the Finance Bill changing tax treatment for debt mutual funds as a ''surprise'', which will be detrimental to the agenda of corporate bond market development.

Late on Thursday evening, the industry came to know about the changes the government proposed, wherein tax benefits for over three year investments in debt mutual fund investments will not be available and all such bets will attract short-term capital gains tax.

The Bill was passed by the Lok Sabha on Friday.

A Balasubramanian, chairman of MF industry lobby grouping Amfi, who also heads Aditya Birla Sun Life AMC, called the amendments as ''surprising'' and added that the industry will have to be ready for the changes that set in from April 1.

Consultancy firm Dhruva Advisors' partner Punit Shah said the amendment to treat gains on debt mutual funds as short-term gains will substantially diminish the attractiveness of such products.

''The amendment in the finance bill will have significant structural changes to the way we invest. For mutual funds to get investor interest, it'll now have to purely be on their ability to add extra ''risk adjusted returns'' and not because of any tax arbitrage,'' Srikanth Subramanian, CEO of wealth management firm Kotak Cherry, said.

Financial advisor firm Fintoo's founder Manish P Hingar explained that mutual funds may no longer receive indexation benefits and will be taxed at marginal rates, and added the move will also impact gold funds and international funds.

''This move may have a negative impact on all debt funds, particularly in the retail category, as ultra-high net worth and high net worth individuals may choose to invest in safe havens like bank fixed deposits.

''We may see a shift from long-term debt funds to equity funds, and money may be directed towards sovereign gold bonds, bank fixed deposits, and non-convertible debentures in the debt category,'' Hingar said.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)