The bar for PMS fund managers to please crorepati investors just got higher after Budget
[hfe_template id='11223']
[ad_1]
The increase in capital gains tax in the Union Budget makes it tougher for PMS fund managers, who handle money for rich investors, to beat the good old mutual funds. While MFs themselves are not taxed when they churn portfolios, crorepati clients of PMS schemes are taxed, which can lead to inferior post-tax returns. With 20% short-term capital gains tax and 12.5% long-term capital gains tax, the difference in tax rates is now 7.5%, which was 5% earlier (with 15% STCG and 10% LTCG). As a result, PMS funds now need to maintain an alpha of 2% to 4% annually over mutual funds only to match post-tax returns. "If a mutual fund returns 12% a year, for an equivalent post-tax return, a PMS needs to return 13.97%. If a mutual fund returns 15%, the PMS has to make 17.53%. This is based on the assumption of 100% short-term gains in PMS, and that all taxes on capital gains and dividends are removed from the portfolio each year," Krishna Appa...