Skip to main content

Debt Funds - Increase in Long Term Capital Gain Tax

 

Debt Funds - Hike in long-term capital gains

 

 





Hike in long-term capital gains, tax on non-equity funds to 20 percent and extending the holding period to three years will be a damper for debt funds

 

THE Budget comes as a mixed bag of blessings and disappointments for mutual fund investors. While the increase in tax exemption limit under Section 80C of the Income Tax Act will benefit equity fund investors, the changes in tax structure on debt funds may prove to be a drag on their finances. Here's how the maiden Budget presented by Finance Minister Arun Jaitley will affect the mutual fund investors.
DEBT FUNDS The individuals who invested in short-term debt funds and fixed maturity plans (FMPs) to earn better post-tax returns will have to pay more taxes now. The finance minister has proposed a hike in the long-term capital gains tax on debt mutual funds from 10 percent to 20 percent and has extended the holding period to 36 months from 12 months. Experts believe even gold fund investors will be affected by the proposal.

 

People in the higher tax bracket, who preferred mutual funds because of the 30 percent tax implication on the interest earned from bank fixed deposits, will be the worst hit. This makes investments in debt schemes, including FMPs, for less than 36 months, unattractive. The changes proposed in dividend distribution taxes (DDT) would also hurt debt investors.


The DDT was on the net dividend distributed. Now it will be based on the gross dividend distributed. She says investors will be taxed higher at 33.99 percent (including surcharge and cess) from 25.36 percent earlier. Investors should not, however, give up on debt funds entirely because of the new tax proposal.


Due to high inflation, even if you invest in debt funds with a three-year horizon, using the indexation method, your post-tax returns could be higher than those offered by bank fixed deposits.

Some experts feel investors should take a look at arbitrage funds as they can offer better post-tax returns. Arbitrage funds, as the name suggests, look for an arbitrage opportunity among different markets. They are treated as equity funds for taxation purposes, that is, investments held for over one year will not attract taxes. Investors with no risk appetite and an investment horizon between one and three years can consider investing in arbitrage funds.


ELSS The Budget proposal to increase the investment limit under Section 80C is good news for fans of tax-saving mutual fund schemes. The finance minister has raised the exemption limit from `1 lakh to `1.5 lakh under the Section, thereby , enhancing the tax-saving ability of small investors.


Effectively, it means that you can now enjoy a further `50,000 deduction on your total taxable income if you invest an equivalent amount in eligible Section 80C instruments. Individuals earning up to `4 lakh and making an investment of `1.5 lakh under Section 80C will be out of the tax net. The earlier limit was considered too low for investors to actually make optimum use of the available options.

For most individuals, the mandatory contributions towards Provident Fund and premiums towards life insurance policies ate up a chunk of the `1 lakh limit. Earlier, many investors had no reason to save further. However, the revised limit now provides more headroom for them to consider good investment avenues. Experts insist that the revised limit should be used to allocate more towards equities. your compulsory savings towards PF and insurance, investors should now make use of this enhanced limit to take exposure to a different asset class, such as equities."

A tax-saving equity fund or equity-linked savings scheme (ELSS), which falls under the Section 80C umbrella, is the best option to deploy the surplus savings. Investors should make the most of the additional investments of `50,000 allowed under Section 80C by picking up the right schemes. Not only will it help in saving tax, but also provide more scope for wealth creation over the long term. Besides, with a lock-in period of just three years, these products come with a shorter maturity period than most traditional savings instruments, including the Public Provident Fund, National Savings Certificates and tax-saving FDs. Says Rajesh Kothari, managing director, It is better to invest in equity for the long term compared with fixed income, both from the perspective of liquidity and tax saving.

RGESS Apart from ELSS, first-time equity investors looking to save taxes, in addition to Section 80C, can consider investing in the Rajiv Gandhi Equity Savings Scheme (RGESS). If you exhaust the `1.5 lakh limit, you can claim a further deduction of `25,000 on your taxable income by investing in it. Many investment experts were expecting the new government to give it a quiet burial, but nothing of the sort happened. RGESS continues to be intact and first-time investors can continue to invest and claim tax benefits. Those with a gross annual income of `12 lakh or less can invest up to `50,000 under Section 80CCG in the scheme every year, and claim tax benefits for a period of three years.


Investors have the option of buying stocks from the BSE-100, NSE CNX 100, Maharatnas or Navratnas or ETFs specified under the scheme. Experts say investors must avail of the entire `1.5 lakh limit under Section 80C and opt for ELSS if they want equity exposure. If you are inclined to save more tax, consider opting for RGESS, preferably through designated mutual funds and not through direct investment in shares.

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

Leave a missed Call on 94 8300 8300

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

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any 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. Franklin India Bluechip
      4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
      4. Birla Sun Life Front Line Equity Fund
      5. Franklin India Prima

C. 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
      5. Birla Sun Life Dividend Yield Plus
      6. SBI Emerging Businesses Fund
      7. HDFC Mid-Cap Opportunities Fund
      8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
      2. Franklin India Smaller Companies

E. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
      3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

      1. DSP BlackRock Tax Saver Fund
      2. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund
      4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF

Popular posts from this blog

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

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

LIC's JEEVAN SHIKHAR

  LIC's Jeevan Shikhar is a participating, non-linked, saving cum protection single premium plan wherein the risk cover is ten times of Tabular Single Premium. The proposer will have an option to choose the Maturity Sum Assured. The premium payable shall depend on the chosen amount of Maturity Sum Assured and age at entry of the life assured. This plan also takes care of liquidity need through its loan facility. The plan will be open for sale for a maximum period of 120 days from the date of launch. 1.   BENEFITS   : a) Death Benefit: On death during first five policy years: Before the date of commencement of risk   :   Refund of Single Premium without interest. Single Premium mentioned above shall not include any extra amount if charged under the policy due to underwriting decision and taxes. After the date of commencement of risk   : "Sum Assured on Death" equal to 10 times the tabular single premium shall be payable. On death after completion of five policy years but b...
Read more

Rajiv Gandhi Equity Savings Scheme (RGESS) set for launch this week

The finance ministry is set to notify the Rajiv Gandhi Equity Savings Scheme ( RGESS ) this week.   Though Finance Minister PChidambaram had approved on September 21, the scheme announced in this year's Budget, and had said that the revenue department will notify the scheme and the Securities and Exchange Board of India ( Sebi ) would issue relevant circulars within two weeks, it is yet to become operational.   A senior finance ministry official said the revenue department was expected to notify the scheme any day now to attract retail investors to the equity segment.   He added that Sebi was not required to issue any circular for the operationalisation of the scheme and that after the issuance of the revenue department's notification, investors would be able to avail of the benefits of the scheme.   The official accepted that implementation of the scheme had been delayed due to the deliberations on inclusion of mutual funds ( MF ) in it.   ...
Read more

IDFC Nifty ETF

IDFC Mutual Fund has launched IDFC Nifty ETF . The fund seeks to provide returns tha, before expenses closely correspond to the total return of the underlying index, subject to tracking errors. The minimum investment is `5,000 and the NFO closes on 30 September. ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. Reliance Tax Saver (ELSS) Fund 10. Birla Sun Life Tax Plan Invest in Best Performing 2016 Tax Saver Mutual Funds Online Invest Online Download Application Forms For further information contact Prajna Capital on 94...
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