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

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...
Read more

JP Morgan launches Emerging Markets Opportunities Equity Offshore Fund

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 JP Morgan launches Emerging Markets Opportunities Equity Offshore Fund    The new fund offer opens for subscription on 16 th June and closes on 30 th June. JP Morgan Mutual Fund today announced the launch of its open end fund of fund called Emerging Markets Opportunities Equity Offshore Fund. The fund will invest in an aggressively managed portfolio of emerging market companies in the underlying fund - JPMorgan Funds - Emerging Markets Opportunities Fund, says a JP Morgan press release. Noriko Kuroki, Client Portfolio Manager, Global Emerging Markets Team (Singapore), JPMAM said, "Emerging markets have been out of favour for several years, as growth decelerated and earnings struggled. However, in a world of globalisation, we believe that EM will eventually re-couple with DM, leading to the long-aw...
Read more

Nifty F&O

  1. What is a straddle? A strategy using Nifty options usually before a major event or when one is uncertain of market direction. Comprises purchase of a Nifty call and put option of the same strike price. Usually strikes are purchased closer to the level of the underlying index. 2. What is better ­ buying or selling a straddle? It depends.Implied volatili ty of options, or near-term expectations of price swings in an un derlier like Nifty , usually peaks before an event and falls when the outcome plays out ­ like Infy re sults in past years. However, once the event plays out, a sharp rise or fall in Nifty could result in price of the straddle rising ­ benefiting buy ers. But, normally , those who sell or write options charge hefty premiums from buyers in the hope that fall in volatility would ensure the options end out-of-the-money, hurting buyers. 3. So, do straddle sellers end up winning most of the time? Yes. That's invariably the case when market volatility is trending on the...
Read more

UTI Equity Fund Invest Online

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   UTI Equity Fund   Invest Online UTI Equity is a large cap-oriented fund with assets under management worth Rs. 2,269 crore (as on June 30, 2013). The fund was originally launched in May 1992 as UTI Mastergain and is benchmarked against S&P BSE 100. A couple of years back the name of the fund was changed to UTI Equity Fund and many of the smaller funds of UTI were merged into this fund. Performance The fund has outperformed its benchmark as well as the equity diversified category average in the last one-, three- and five-year periods. It has repeated the same in 2013 (as on May 31). Since its inception the fund has delivered an impressive 26 per cent compounded annual growth rate which is superior to its benchmark performance in the same period. Y...
Read more

Good time to invest in Infrastructure 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   Good time to invest in infrastructure The Sensex has gained almost 10 per cent from May 15 till date, while the CNX Infrastructure Index has gained almost 17 per cent in the period. The price to earnings ( P/ E) ratio of the BSE Sensex is 18.96; for the CNX Infrastructure Index, it is 24.57. The estimated P/ E for next year is 14.04 for the Sensex. Of the 24 companies that make up the CNX Infrastructure Index, six have a P/ E higher than 20. Does this mean infrastructure is fairly valued? Or, has it run up quite a bit? According to experts, barring stray companies, the infra sector is fairly valued and it is a good time to invest. Even if some companies are facing debt restructuring problems, once interest rates come down and regulatory norms become flexible, they will start giving good re...
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