Goods and Service Tax (GST), India’s biggest tax reform is going to soon turn into reality from July 1. Goods & Services Tax (GST) is an indirect tax throughout India to replace taxes levied by the central and state governments.
Under the GST regime, Asset Management Companies (AMCs) will have to pay service tax of 18 per cent on the investment management fees they earn. Until now, the rate was 15 per cent. Management fees are part of the total expense ratio charged annually by AMCs. These include marketing and selling expenses, fees paid towards registrar and transfer agents, trustees, auditors, etc. Typically, equity funds charge management fees of 1-1.5 per cent of the assets under management, while debt funds charge between 0.05 per cent and 0.5 per cent.
The impact will not be that big, but it surely will change something for the mutual fund investors. The increase in service tax from 15 per cent to 18 per cent would make mutual funds a bit expensive. The higher expense ratio will lead to lower returns in mutual fund schemes. There will always be some or the other change in the markets and policies, investors do not need to keep changing their portfolio. Equity mutual funds are a long-term investment. Policy changes will happen but investors should stick to their schemes. However, most of your funds will be able to capture these changes in the market.