Skip to main content

How to optimize your tax using mutual funds?

Buy Gold Mutual Funds

Invest Mutual Funds Online

Download Mutual Fund Application Forms

Mutual Funds by their very nature are not tax saving instruments but investment products that may offer tax concessions. But the question is whether these should be looked at as tax saving instruments?

Equity Linked Savings Schemes (ELSS) Are Strong Favorites

ELSS schemes give twice the benefit as compared with diversified equity schemes. They give you tax sops on investments and are also exempt from long term capital gains tax.

These are special equity funds, which have to invest at least 80% of their corpus in equity, and investments are locked in for a period of 3 years. Investments can get you benefits under Section 80 C i.e. investments of upto Rs 1 lakh in such schemes can be reduced from your gross income.

ELSS is the best example of an investment option that provides you a very simple way of investing in stock market and save taxes while doing so. Being equity oriented schemes, ELSS have the potential to provide better returns than most of the options under section 80C. Also, as per the current tax laws, an ELSS investor is not only entitled to earn tax free dividend but also the long term capital gains are not taxable.

But should an investor go the whole nine yards and put in the entire permissible amount of 1 lakh in ELSS? Probably not!

Section 80 C covers your principal on housing loan, PF, pension plan, life premiums, so only what is left after that can give you a benefit if invested in ELSS.

All Smiles From Equity Funds:

Apart from ELSS schemes, diversified equity schemes are a good investment considering that capital gains in equity funds below one year are taxed at a rate of 10% and over a year are tax-free. This option can be best exercised using a Growth Plan offered by mutual funds. The primary objective of a Growth Plan is to provide investors long-term growth of capital.

Dividend paid in Dividend Plans is tax free, and no distribution tax is deducted. However, every time we buy or sell equity shares a Securities Transaction Tax, STT, of 0.25% is paid and further when you redeem your investment, again STT is deducted from your redemption price.

So what strategy will help to reduce the burden of STT to the minimum possible extent?

Choose the dividend option, while it remains tax-free. Though both decisions are by and large tax-neutral, your STT will go down if your profits have already been taken out by you in the form of dividend

Debt Funds Can Benefit From Indexation

Debt funds have lost their sheen thanks to falling interest rates and paling tax sops when compared with equity schemes.

Any fund wherein the average holding in equity is 65% (as per Budget 2006) or below is treated as a debt fund. If you invest for less than 1 year in the growth option of a debt fund, you will have to pay Capital Gains Tax on your "profits" at the rate at which you pay income tax on your income. But, if you stay invested for over a year, you can either pay 10% tax on the profits or pay 20% after reducing the rate of inflation (indexation benefit). So if you are invested for three or four years, your tax may become much, much lower than 10%.

Nevertheless for the risk averse, there are ways to reduce the tax burden on returns.

Investors can also benefit from double indexation benefit (when you invest late in one financial year say on March 28, 2005, and redeem early in the next financial year say on April 2, 2006, you use the index of both Financial Year ending March 2006 and March 2007 to get this benefit for as little as 366 days) provided the two financial years' index adds up to more than 10%.

In the dividend option, dividend is tax free in your hands. But the dividend distribution tax deducted at source also comes out of your NAV. So you end up paying a tax of 10%. Further any increase in NAV over and above the dividend distributed, is taxed as in the case of the growth option.

Most debt fund investors who have a reasonable horizon to invest for at least one year or more, in any case and choose the growth option, since by and large this would prove most tax efficient for retail investors in the lower tax brackets

--------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

Best Performing Mutual Funds

    1. Largecap Funds        Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds     Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds    Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds             Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds              Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Gold Mutual Funds             Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

Am you Required to E-file Tax Return?

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   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...
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