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

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...
Read more

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...
Read more

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...
Read more

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...
Read more

Perpetual SIP - Its Advantages

Retail investors have taken a fancy to investing in mutual funds through systematic investment plans (SIPs). As per industry estimates, Rs 4,000 crore flows into SIPs every month. One way to take advantage of SIPs in a true long-term manner is to opt for a perpetual SIP 1. What is a perpetual SIP? In an SIP , you make periodic investments in a mutual fund scheme of your choice generally every month for a pre defined tenure. While signing up an SIP mandate , you have the option to leave the end-date column blank. If the column is blank, it means the investor has opted for a perpetual SIP . Most fund houses assume this SIP will continue till December 2099 unless you give a written communication to stop it. However, some fund houses require you to tick the `perpetual option'. 2. What are the advantages of perpetual SIPs? Registering an SIP involves a lot of paperwork and it takes time. It is observed that many investors skip their SIP instalments when they go for short-tenure option...
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