Skip to main content

Before exiting an equity fund check your tax liability

MUTUAL fund investors often have a tendency to hold on to their investments for a long time without ever looking at it.


There are several problems with this kind of approach.


There could be a situation where the actual investment might be performing badly and the additional holding period does nothing to help the situation.

At the same time, there is also the risk that such a long holding of the lossmaking investment can even take the tax benefit away that otherwise might have been possible on the investment, especially in case of equity-oriented funds.

Here is a look at the issue and why investors need to regularly look at their portfolio to see if some action is required.


Long term: The first thing to constantly keep in mind is about the nature of the investment holding.


When it comes to various investments, including mutual fund units, they can be either long term or short term in nature. If the mutual fund units have been held for 12 months or less, then these would be classified as a short-term asset.

When the holding period exceeds 12 months, then it becomes a longterm asset. The classification of the holding is necessary because this determines the entire issue of whether the position of a loss can actually be salvaged to some extent.


Loss making: There are times when the investment does not work out as expected. It is easy to deal with the situation when there is a gain that is earned on the investment because this will mean just looking at whether there is a tax to be paid and how much the tax amount is.

In case of a loss, there is a far more complicated process at hand that one has to deal with and this includes the act of calculating the exact loss and then ensuring that there is some set off available. The first thing that many investors have to do is to actually accept the fact that there is a loss that they are incurring.

The next part involves looking at the nature of the loss and whether it is something that can be recovered. This is very difficult to judge because nobody knows how the future will actually turn out, but there is always something that often gives an indication to the investor.

A small amount of loss, which takes place due to short-term market movements, is not something serious in an equity oriented fund.

However, if the markets have collapsed and the fund is showing a 3040 per cent loss, then it might just be very difficult to recover for a long time to come. Nature and tax: In case of equity-oriented funds, if there is a long-term loss that is recorded on the sale of the units, then there is no tax impact.

This happens because of the fact that the equityoriented funds have a zero rate of tax on long-term capital gains, so there is no set off available for the loss that has been recorded.

On the other hand, if the units were sold before a year is complete, then there would be a loss all right, but the loss would be available as a set off against some short-term capital gains that has been earned. These are reasons why there has to be a constant evaluation of the portfolio.

It will give the investor an idea whether they need to take any immediate action or they can just sit back and watch the performance of the fund. In cases where the situation does not hold out much hope, the investor would be better off taking the loss in the short term, so at least, there is a set off available for them.
 

Popular posts from this blog

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...
Read more

How much to invest in gold ?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) Let your motivation dictate the share of the yellow metal in your portfolio Enough has been said and written about gold as an investment option. The latest argument is that the craze for gold among Indian households is endangering our country's balance of payments. The policymakers are busy trying to find ways of discouraging investment in gold, but if households keep the common good in mind, they would be paying the market price for gas cylinders as they do for, say, their mobile phone bills. After all, private decisions are driven by private motives. So, how should a household look at gold from its own perspective? Gold is primarily acquired for its merit as a store of value. Even if the worst crisis hits a family, the gold that it holds could be put to use anywhere in th...
Read more

Time-tested methods to pick a good mutual fund

Proper understanding of a fund is important as it enables investors to keep a tab on its actual performance THERE are various types of mutual funds and one way of segregating them is on the basis of active or passive management. Th is makes the understanding of the nature of the fund easy for a lot of investors, as it shows the basis on which investment decisions will be made. Some funds also have a mixture of both active and passive management. Su ch funds need to be considered carefully if they are to be selected as an investment avenue. Here is a look at the manner in which such funds operate and its impact on decision-making. Mixture : The selection of the portfolio of an equity oriented mutual fund can be done in an active manner. The fund manager can take the decision about which stocks should be bought and sold by the fund. On the other hand, there can be a passive fund where the decision making is not in the hands of the fund manager as a specific index is followed for...
Read more

Save Tax With Mutual Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300       Mutual funds are ideal as long term investment avenues for retail investors. To encourage investments in this avenue, the Government of India offers investors a spate of tax benefits thus ensuring maximum benefit from mutual funds held beyond a year. Sample some of the key benefits and refer to the table for a detailed list of tax rates for different types of schemes ·        Avail deductions under Sec 80C of the Income Tax Act by investing up to a maximum of Rs. 1 lakh in designated Equity Linked Savings Schemes (ELSS). Such investments have a compulsory lock in period of 3 years. ·        First time retail investors in equity with a gross total income of up to Rs. 12 lakh can invest up to Rs. 50,000 in specific MF schemes un...
Read more

Diversification is key to gain more

Even those who prefer debt for its safety are looking at more options    It is not often that you find more than a couple of asset classes producing good returns at the same time. Invariably, assets such as gold and equity don't perform in tandem, and hence it was easier to allocate to them in line with the risk profile of the investors. In the last couple of quarters, however, more than one asset has turned attractive - gold, debt and equity. In line with the trend, you even have monthly income plans with a combination of more than two assets.    In the past, those who stuck to debt were a different class of investors who didn't wish to take risk with their money. The changing lifecycles and the growing integration of investment markets across the globe have pushed even individual investors to embrace the concept of asset allocation. Hence, you have individuals who were using debt to park profits being prepared to take advantage of other assets.    For instance, when the...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now