Platinum SIF by Mirae Asset Mutual Fund has filed a draft Investment Strategy Information Document (ISID) with SEBI for Platinum Sectoral Debt Long-Short Fund. It is an interval debt-oriented strategy marking the first SIF in the debt category of SIFs.
This marks a significant development as this is the first debt SIF strategy to hit the regulatory pipeline since SEBI’s SIF framework and this is the segment where the distributors and RIAs will likely have to spend more time on its tax treatment considerations.
As per the specifications, this strategy falls inside the post-2023 “Specified Mutual Fund” regime that scrapped indexation benefits for debt funds.
How does the fund work?
The strategy will invest in debt and money market instruments across a minimum of two sectors. Financial services sector has the lion’s share (50-75% of assets), while other permitted sectors include services, construction, power, realty, chemicals, metals & mining.
The strategy carries a moderate interest rate risk and relatively high credit risk label, making it a Risk Band Level 3 strategy. It is benchmarked to CRISIL Composite Credit Risk Index (Total Returns variant).
Kruti Chheta will be the fund manager for the strategy. She has been working with Mirae Asset for the last seven years as a fixed income analyst and fund manager. She has also worked with AK Capital and Shriram Wealth Advisors.
Redemption structure
Redemption structure is probably the most interesting part of this strategy. Being an interval fund, subscriptions are open daily, but redemptions are permitted only once a year, during a Specified Transaction Period of 2 to 15 business days, on top of a 15-working-day notice period.
This means, if an investor misses the window of redemption his/her money the money stays invested for another year till the next redemption window opens.
Additionally, the units for the fund are to be listed on NSE/BSE within 5 business days of allotment. This gives the investors a chance for secondary-market exit, but the trading price on the exchange may be significantly lower than the prevailing NAV and this is a problem that has bitten investors in listed-but-illiquid fund structures before.
The tax angle
For the MFDs serving HNI and UHNI clients, this segment of the strategy deserves the most attention. Since the Finance Act 2023, any mutual fund that invests less than 35% of its corpus in equity shares of domestic companies falls under the “Specified Mutual Fund” (SMF) definition. Gains on such funds are deemed short-term capital gains regardless of how long the units are held without availing indexation.
This means that every rupee of gain is taxed at the investor’s slab rate (for residents) or 30% (for FIIs), irrespective of whether the investor held the units for one year or five. The only reward for the three-year holding period is the removal of exit load after three years ( the strategy has exit loads of 3%, 2% and 1% for redemption within one year, between one and two years and between two and three years, respectively).
Other key points to notice
- As per the SEBI mandate, the strategy will contribute 25 bps of AUM to the Corporate Debt Market Development Fund (CDMDF) as a backstop liquidity mechanism, with the AMC separately contributing 2 bps
- The base expense ratio for the strategy is capped at 1.85% for the first Rs. 500 crore of AUM, tapering down the usual SEBI slabs thereafter
- It will not invest in credit default swaps, unrated debt instruments, or overseas securities
- The strategy can take unhedged short exposure through debt derivatives of up to 25% of net assets, which is in addition to the 50% cap allowed for hedging and portfolio rebalancing
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