Tax parity for fixed-income mutual funds could spur significant growth, says SBI Funds Management's Srinivas Jain

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The mutual fund industry has renewed its demand for tax parity for fixed-income (debt) mutual funds, saying a more favourable tax regime could attract more investors and accelerate the growth of the segment. Speaking at the IPO press conference in New Delhi, Executive Director at SBI Funds Management, Srinivas Jain, said the industry has consistently raised the issue with policymakers and remains hopeful that tax reforms will unlock the full potential of debt mutual funds.

Why is the mutual fund industry seeking tax parity for fixed-income mutual funds?

The mutual fund industry is seeking tax parity because fixed-income (debt) mutual funds are taxed less favourably than equity mutual funds. Under the current tax regime, most debt mutual funds are taxed at the investor’s applicable income tax slab rate, regardless of the holding period. In contrast, equity mutual funds enjoy concessional tax rates on short-term capital gains (held for up to one year), which are taxed at 20 percent, while long-term capital gains (held for more than one year) are taxed at 12.5 percent above the applicable exemption limit.

How will tax parity impact fixed-income mutual funds?

Jain said tax parity for fixed-income (debt) mutual funds remains one of the mutual fund industry’s long-standing demands. He noted that the Association of Mutual Funds in India (AMFI) has been consistently making representations to regulators and the government on the issue, adding that policymakers have been engaging with the industry through ongoing discussions.

Jain said that if the tax treatment of fixed-income mutual funds becomes more favourable, the segment could witness significant growth by attracting more investors. However, he added that it remains uncertain whether such a policy change will be implemented.

“One of the long-standing requests is to give us tax parity, especially on the fixed-income side. I don’t know whether that will happen, but if it does, the fixed-income segment will grow in a big way,” Jain said.

Also read: SBI Mutual Fund IPO opens today: Price band, key dates, should you apply?

How diversified is SBI Mutual Fund’s distribution network?

While policy reforms remain an important growth lever, SBI Funds Management said its business growth is increasingly being driven by a diversified distribution network rather than dependence on any single channel.

“Our distribution is already highly diversified. While SBI remains a very important partner, we have a broad distribution network that includes more than 2,000 distributors, other banks, national distributors, independent financial advisors (IFAs), and digital platforms. SBI enjoys a unique position because of its reach, but every other channel also contributes meaningfully to our business,” said D.P. Singh, Joint CEO, SBI Funds Management Ltd.

According to Singh, SBI Mutual Fund has built strong relationships across multiple distribution channels, with a significant share of inflows now coming through IFAs, followed by national distributors and other partners.

“If you look at our growth trajectory over the past 12 years, we initially expanded through the SBI channel before scaling up across other distribution channels. Although our base through SBI was already very large, most of the incremental business we have generated in recent years has come from the non-SBI channels, reflecting double-digit growth,” Singh said.

“Our overall growth is being driven by contributions from every channel, SBI, other banks, IFAs, national distributors, and the direct channel through our digital platforms. So, rather than reducing our dependence on any one channel, our focus is on making the business even more diversified by continuing to grow across all channels,” added Singh.

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