Top Indian mutual fund executives are urging the government to align the tax treatment of debt funds with listed securities to attract household savings. They noted that the current tax structure, where gains are taxed at the investor's marginal rate, makes debt funds less competitive. This follows data showing a decline in debt fund assets relative to bank deposits since 2016.
On September 16, 2026, prominent leaders from India's mutual fund industry gathered at the Moneycontrol Mutual Fund Summit to advocate for policy changes they believe will revitalize debt markets and boost household financial savings. Executives from HDFC Asset Management Company, Kotak Mahindra Asset Management Company, and Edelweiss Mutual Fund highlighted that current tax regulations place debt mutual funds at a competitive disadvantage.
Industry leaders pointed to a shift in investment patterns, noting that debt and liquid mutual fund assets have dropped from being equivalent to roughly 10% of bank deposits in 2016 to just over 6% today. Navneet Munot of HDFC AMC highlighted this trend as evidence that industry growth has become heavily tilted toward equity-driven products, partly due to tax structures that favor other assets.
The central demand is for tax parity. Currently, capital gains from most debt mutual funds are taxed at the investor's marginal income tax slab rate, regardless of how long the investment is held. In contrast, listed debentures can attract a 12.5% capital gains tax rate after a specific holding period. Nilesh Shah of Kotak Mahindra AMC argued that closing this tax gap would allow pooled debt products to better compete with direct fixed-income instruments, potentially bringing more retail savings into the mutual fund fold.
Beyond taxation, the executives raised concerns about the depth of the market. Nilesh Shah noted that limited liquidity in interest-rate derivatives and low activity in credit default swaps make it difficult for fund managers to hedge portfolio risks effectively. Radhika Gupta of Edelweiss Mutual Fund added that the corporate bond market needs to span a wider range of credit quality to be truly useful. She also suggested that the industry needs more flexible products for long-duration assets, such as Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), which could act as better vehicles for long-term infrastructure funding.
For investors, it is important to note that these discussions represent industry proposals rather than pending government policy changes. There is no official announcement from the government regarding a revision to the current tax structure for debt mutual funds. Investors should continue to monitor future government statements, budget documents, or regulatory updates from the Securities and Exchange Board of India (SEBI) to see if these suggestions gain traction. Until any policy shift occurs, the current tax treatment remains the standard for debt fund investments.