The Association of Mutual Funds of India (Amfi) has released a series of recommendations for Budget 2019. Among other suggestions, the list features a request for clarity on the taxation of side pocketed units (formally known as “segregated portfolios"). Side pocketing is a procedure promulgated by the Securities and Exchange Board of India (Sebi) in December 2018, which allows mutual funds to set aside a certain number of units against bad debt held by them. This is done in times of financial distress. A lack of clarity on the taxation of side pocketing can add to the problems of investors who have already suffered from a debt downgrade or default.
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