HNIs, brokers brace for tax impact as debt fund fiasco unfurls

Mumbai: Even as the Franklin Templeton investors wait till the fund house liquidates its maturities and coupons for six of its credit funds, several high networth individuals (HNIs), brokers and financial companies that dabble in stocks could have a tax impact in the next few months.The companies and individuals have reached out to their tax advisers as they will have to take the Franklin announcement of closing the funds into consideration and as a corollary that will change the tax outgo in March and June quarters.Tax experts say the tax impact for brokers and companies would be different from that of individual investors or HNIs.The brokers will have to value the mutual funds as stock in trade and take an asset write-off.“Brokers, financial companies who have exposure to the six Franklin funds will have a tax impact even in the March-end quarter. They will have to value the mutual funds as stock in trade at lower value and will get a tax deduction of the write-off,” said Girish Vanvari, founder of tax advisory firm Transaction Square.Tax experts say in some cases, brokers will have to take impairment charges on the mutual funds they hold, even if they are unable to exit at this point in time.However, the issue, say tax experts is the quantum of impairment charges.Many of these impairments will have to take the current valuation of the fund and the realistic analysis of how much money they may actually see when the redemption happens, say industry trackers.The individual investors, or HNIs, on the other hand who treat investment in mutual funds as capital investments, are preparing themselves for redemption from the funds as that’s the only time they can account the loss.“For many HNIs, the tax on the investment in the six Franklin funds would only be applicable when they redeem it or receive payment from fund. However, this is set to have long-term impact on the fund as well as the mutual fund industry, and that could impact several investors this year,” said Hinesh Doshi, managing partner, Hinesh R Doshi & Co LLP.Insiders say the tax impact for several investors could come within the next few months, and they are planning taxes keeping in mind the future scenario. Many HNIs whose funds are stuck are hoping that the redemption event may happen as early as July.

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