Investors use debt schemes mainly for tax benefits: Our online Survey results
Moneylife Digital Team 14 August 2014

Moneylife’s online survey on debt mutual funds shows that 65% of the respondents said they invested in these schemes to take advantage of the tax benefit


Moneylife conducted an online survey about how investors viewed Fixed Maturity Plans and Debt Schemes before and after Budget 2014. The focus of the survey was to gauge the views of savers—whether they still find debt mutual fund schemes attractive or not—after the Budget imposed taxes. Out of the 700 responses from members and subscribers, only 527 gave valid responses; the rest either did not invest in mutual funds (MFs) at all or did not complete the questionnaire. We have considered these 527 responses as the sample. Of these, 89% invest in equity schemes and as many as 458 (or 87%) invest in non-equity schemes like debt schemes, leading us to conclude that a high percentage of mutual fund investors would be impacted by the change in tax norms.
Based on their responses, many of them showed that they were knowledgeable about their tax management. Over 85% were aware of the tax advantage enjoyed by FMPs, debt schemes and other non-equity schemes over traditional fixed-income products, before the Budget. As many as 65% said they invested in these schemes to take advantage of the tax benefit.

Our Survey showed that investors use non-equity schemes mainly to avail of the tax benefits.
The taxation of FMPs and debt funds has not been raised. Earlier, it was 10% without indexation or 20% with indexation, whichever is lower. Now, it is only the latter.

A significant percentage of respondents hold units of liquid and debt schemes for a period of one year to three years. As many as 42% of the participants invest in liquid schemes for less than a year and an equal number hold investments in liquid schemes for a period between one year and three years. Just around 13% hold such investments for over three years. Similarly, just about 20% hold debt schemes for over three years, while around 70% stay invested between one year to three years.

When asked if they would invest in FMPs or debt schemes for period less than a year, as many as 65% said they would not; 20% were not sure. This is significant, because this explains three things to us, why investors used FMPs and debt schemes, was taxation the main driver or was it the inherent strength of the product and finally, whether they will invest in such schemes in the future. See the chart below.

If Investors pull money out from FMPs and Debt Schemes where will they put this money? On choosing alternatives to debt schemes and FMPs for an investment period less than a year, as many as 41% said that they would choose banks FDs. Surprisingly, 23% said they would invest in balanced mutual fund schemes, despite their high equity component. Many participants seemed to be aware of arbitrage schemes; 23% mentioned that they would invest in these schemes as well. Investing in corporate FDs and corporate bonds were picked as alternative options to debt mutual fund schemes by 21% and 14% of the respondents respectively. Just about 10% said they will continue to invest in FMPs and debt schemes. Hybrid schemes, such as MIPs found interest from just 5% of the participants.


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