Fund Manager Flags Early SIP Drop-Off, Urges Review of Equity LTCG Tax

Concerns over India’s equity taxation regime resurfaced on Wednesday after Complete Circle Chief Investment Officer (CIO) Gurmeet Chadha urged Finance Minister Nirmala Sitharaman to reconsider the long-term capital gains (LTCG) tax, citing low investor persistence in systematic investment plans (SIPs).

Highlighting data that shows only 30% of SIPs continue beyond three years, Chadha said patient, long-term risk capital is struggling to stay invested under the current tax structure. He argued that such capital should be encouraged rather than penalised if India wants to sustain long-term economic growth.

“Patient long-term risk capital must be rewarded. Only 30% SIPs are crossing three years,” Chadha said, appealing to the finance minister to re-evaluate equity LTCG taxation.

His remarks came a day after AAP MP Raghav Chadha raised similar concerns in the Rajya Sabha, warning that high capital gains taxes and frequent policy changes are discouraging long-term investments, even as domestic investors increasingly support Indian markets during periods of foreign outflows.

Raghav Chadha pointed out that between January 2025 and mid-December 2025, foreign portfolio investors (FPIs) withdrew ₹1.6 lakh crore from Indian equities. During the same period, domestic investors infused nearly ₹7 lakh crore, cushioning the market and demonstrating growing maturity among Indian savers.

However, he questioned whether sufficient policy incentives exist to support these investors. He argued that the removal of indexation benefits, higher surcharge-linked tax rates, and frequent tax revisions have created uncertainty, treating long-term investments like short-term speculation from a taxation perspective.

“The basic principle of economics is simple: tax consumption if required, but nurture investments,” the AAP MP said, warning that over-taxation of investments could discourage wealth creation and weaken capital markets.

Raghav Chadha also flagged slowing bank deposit growth, which fell to 10% in FY25 from 13% in FY24, noting that lower deposits raise banks’ cost of funds, make loans expensive, and hurt MSMEs and financial stability.

To address these challenges, he proposed several tax reforms, including higher tax-free limits on savings account interest, tax relief on fixed deposits held for more than five years, restoration of indexation benefits across asset classes, and a reduction in short-term capital gains tax to encourage long-term investment behaviour.

The debate follows changes announced in the Union Budget 2024, where Finance Minister Sitharaman increased the LTCG tax rate from 10% to 12.5% on listed equities and other assets, while raising the exemption limit from ₹1 lakh to ₹1.25 lakh. The short-term capital gains tax was also raised from 15% to 20%, sparking criticism from market participants and long-term investors.