Over the last few years, the AMFI and other fund CEOs have been lobbying with the finance minister for a small and logical change in the regulation of taxation of fund of funds. FOFs are like mutual funds with a small difference. Unlike MFs which directly invest in equity and debt instruments, FOFs invest in equity funds and debt funds. Hence the name Fund of Funds or FOFs. Finally, the latest budget has made some key changes to the FOF taxation, at least on the short term capital gains front. Here are the key changes in the latest budget.

· With a view to promote CPSE-ETF (among the FOFs), the government in its 2019 July budget extended several tax benefits to the FOFs also. This is likely to make the FOFs popular among Indian investors.

· In fact, Budget 2019 has proposed a change in the taxation rules for fund of funds (FOFs). The proposal is to allow the concessional rate of tax for short-term capital gains on the transfer of units of FOF. Instead of peak tax, now STCG on FOFs with predominant equity fund holdings will be just 15%. LTCG tax remains the same.

Fund of Funds invest in other mutual fund schemes but do not directly invest the money into assets such as debt securities or equity shares. Effectively there are debts FOFs as well as equity FOFs and their taxation will now differ. This is contrary to the current situation where all FOFs irrespective of the underlying asset class get taxed as per debt fund taxation. This will be a boost for financial planning through FOFs which is very popular among financial planners across developed markets. It is surely a good start!