Skip to main content

Get double benefit on year-end investment

Invest Mutual Funds Online

Call 0 94 8300 8300 (India)
THE end of the financial year is associated with pressure on investors to complete their various investments.

In the middle of such a situation, there is one benefit available for mutual fund investors whereby they can get the gains of two years even while they are investing only for a single year.

This is possible because investors can get the benefit of a term called double indexation.

The end of the financial year is the most suitable time when this can be utilised. Here is a close look at the entire issue and how the benefit can be obtained.

Indexation: When an investor holds an asset such as an equity share or a mutual fund for 12 months or more, it is classified as a long-term asset.

For assets where long term capital gains tax is not zero, indexation benefit is available.

For equity investments like shares and equity-oriented mutual fu-nds, there is zero rate of tax when the investments are held for more than 12 months.

So the question of taking the benefit of indexation does not arise. However this is necessary in case of a debt investment and there is a specific procedure that is followed.

Instead of just looking at the sale price of the investment and then comparing it with the cost price, a different way is adopted to calculate capital gains or loss on the transaction.

In order to give the benefit of inflation effect to the investor, the cost of the investment is raised by a figure, which is announced in the form of an index figure each year.

This index figure is known as the cost inflation index (CII) and it is announced each year by the tax authorities.

Manner of calculation: To calculate indexation, index numbers of the financial year of the sale of the asset and the year of the purchase of the asset are considered for the purpose of increasing the cost. The year here refers to a financial year, so it covers a period from April to March.

For example, if an asset is bought for Rs 40,000 in 2006-07 and sold in 2009-10, then for the purpose of calculating capital gains, the cost of the asset will be 40,000 X 632 (CII of the year of sale)/519 (CII of the year of purchase) = 48,709.

In this case, if the asset is sold for Rs 50,000 then the gain is not Rs 10,000, but Rs 1,291.

Double benefit: In February and March, there is a double benefit that an individual can take with respect to their debt mutual fund investments.

These funds will have the benefit of indexation when the holding is for more than 12 months.

The idea is to look for investments for 13-14 months. Funds also provide a lot of options in the form of fixed maturity plans that are launched in February-March and mature in April-May of the next year.

This represents the benefit for the entire investment.

When it comes to the purpose of calculation of the gains, there is actually a double-year benefit in the form of indexation that is available to investors.

This happens because the purchase is in the financial year 2010-11 while the sale will be in the financial year 201213 because it is after April of the next year.

This will lead to a position where it is likely that the entire amount of earnings of the individual will become tax-free because the indexation gain will most probably be more than the returns generated during this period. Even when the returns are high and there is a small rise in the index number, the gains are also very marginal, which ultimately bring down the tax impact for the individual.

In case there is a loss, it will become a good way to ensure that the income earned remains tax free in nature plus some other income can be set off against the loss from this investment.


Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

 

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

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. Tax Saver Mutual  Funds  Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. 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

All about "Derivatives"

What are derivatives? Derivatives are financial instruments, which as the name suggests, derive their value from another asset — called the underlying. What are the typical underlying assets? Any asset, whose price is dynamic, probably has a derivative contract today. The most popular ones being stocks, indices, precious metals, commodities, agro products, currencies, etc. Why were they invented? In an increasingly dynamic world, prices of virtually all assets keep changing, thereby exposing participants to price risks. Hence, derivatives were invented to negate these price fluctuations. For example, a wheat farmer expects to sell his crop at the current price of Rs 10/kg and make profits of Rs 2/kg. But, by the time his crop is ready, the price of wheat may have gone down to Rs 5/kg, making him sell his crop at a loss of Rs 3/kg. In order to avoid this, he may enter into a forward contract, agreeing to sell wheat at Rs 10/ kg, right at the outset. So, even if the price of wheat falls ...
Read more

ICICI Prudential Balanced Fund

 ICICI Prudential Balanced Fund scheme seeks to generate long-term capital appreciation and current income by investing in a portfolio that is investing in equities and related securities as well as fixed income and money market securities. The approximate allocation to equity would be in the range of 60-80 per cent with a minimum of 51 per cent, and the approximate debt allocation is 40-49 per cent, with a minimum of 20 per cent. An impressive show in the last couple of years has propelled this fund from a three-star to a four-star rating. The fund has traditionally featured a high equity allocation, hovering at well over 70 per cent, which is higher than the allocations of the peers. But in the last one year, the allocation has been moderated from 78-79 per cent levels to 66-67 per cent of the portfolio. ICICI Prudential Balanced Fund appears to practise some degree of tactical allocation based on market valuations. Within equities, well over two-thirds of the allocation is parked i...
Read more

Equity investors should track market developments

The stock markets have been volatile over the last few days. They are in a sideways movement and trying to find the bottom after a fall of 20 percent a week ago. The market sentiments are not very positive at the moment and the recent developments are expected to dampen them further. Globally, governments and central banks are trying to cut rates and announce packages to improve business sentiments. These are some of the major developments in the markets last few month: A) Global On the global front, another large US bank went into a financial crisis. The US government took quick measures to avoid the spread negative sentiments in the markets. The US government announced a bail-out package and agreed to shoulder the losses on the bank's risky assets. China announced a large cut in interest rates and reserve ratio to boost the investor sentiments in the markets. Recently, the World Bank announced China's growth rate next year will come down to 7.5 percent. The European ...
Read more

Birla SunLife Frontline Equity Fund

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   BSL Frontline Equity Fund   Strategy The fund's investment strategy is in line with the BSE 200. This way its allocation is sprinkled across the sectors which brings in stability. Allocation to large caps is close to 75 per cent while market gyrations of last 2 years have seen its allocation to mid- and small-caps come down. Though the fund has the mandate to pick stocks from outside the ambit of BSE 200, it has largely stuck with the benchmark with just 10 to 20 per cent of the investment going outside it over the past 5 years. Sector-wise allocation though is mostly in proportion to the benchmark.   Its dominant sectors include automobiles, FMCG, financial, technology and energy. Banking and FMCG performed well last year which is reflected in performance. Its stock p...
Read more

Tax Planning: Income tax and Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000. The various investment options under this section include:   Provident Fund (PF) & Voluntary Provident Fund (VPF) Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free. Public Provident Fund (PPF) An account can be opened wi...
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