The Securities and Exchange Board of India (Sebi) has asked fund houses to re-categorise their schemes to make it simpler for investors to understand and evaluate their investment decisions. As per the directive, equity mutual funds (MFs) are to be divided into 10 categories and debt funds into 16. Further, each fund house can only have one scheme in each equity and debt category.
Due to this many fund houses have started announcing the merger or consolidation of their schemes to comply with the Sebi directive. During such a merger, a switch from one scheme to another takes place, where an investor will incur either a capital gain or loss on such transaction. This is an important point to note because from April 1, 2018 a 10 percent (plus cess) tax will be levied on long-term capital gains (LTCG) made on the sale of shares and equity-oriented MFs.
Post re-categorisation of mutual fund schemes, many investors could face issues calculating LTCG for the purpose of taxation. Will investors be taxed even at the time of merger/consolidation of schemes? If not, how and when will LTCG be taxed? Read on to find out.
Capital gains on sale of units in a switch due to merger of schemes not taxable As consolidation of schemes takes place, there is good news for investors. "Merger or consolidation of schemes in order to re-categorise existing schemes as per Sebi orders would not attract any capital gains tax, either short-term or long-term, in the hands of the investor. The government had already amended section 47 of the Income Tax Act to exempt the capital gains arising from the
merger or consolidation of mutual fund schemes with effect from April 1, 2016,
What this means is that when a scheme is merged, you will not be taxed on the long and short term gains you will make whenever you will sell the units.
Another good news is that merger of equity MFs will not affect the holding period of your investments in the scheme.
In this case while calculating the holding period of an investment in order to ascertain the tax you are liable to pay on capital gains from it, the initial date of investment, i.e., the date when you first made the investment will be taken into account
LTCG at the time of redeeming your mutual fund investments Assuming that the equity mutual fund scheme you have invested in has been merged with another to comply with the Sebi directive, how do you calculate LTCG/loss? For equity investments held till January 31, 2018 capital gains are grandfathered. Therefore, one has to calculate LTCG based on certain parameters. According to the rules, the cost of acquisition (CoA) in such cases will be taken as the higher of:
a) Actual cost of acquisition and b) Lower of (i) Fair Market Value (FMV) on January 31, 2018 or (ii) actual sale proceeds Grandfathering of long-term capital gains on equity MF units has given rise to two cases: a) Equity schemes that are merged after February 1, 2018 b) Equity schemes that were merged before February 1, 2018
CASE A: Calculation of LTCG for equity schemes merged after February 1, 2018 Since the merger of schemes will be taking place after February 1, 2018, we have to consider two net asset values (NAVs). One NAV for units of the old scheme and the other for units of the new scheme.
To calculate LTCG accrued from the sale of merged mutual fund scheme units, one will take NAV of the old scheme as on January 31, 2018 to calculate the FMV. However, the units have to be adjusted proportionately, depending on the amount of units received on switch
ay you invested a lump sum amount of Rs 1 lakh in December 2016 in Scheme A. The NAV of the scheme at the time of investment was Rs 20. The scheme got merged with scheme B in April 2018. Switch-out NAV of scheme A is Rs 40 and switch-in NAV of scheme B is Rs 100. You then sold your investment in June 2018 at an NAV of Rs 120.
Here we have assumed that FMV of scheme A is Rs 35 as on January 31, 2018 and FMV of scheme B as on January 31, 2018 is Rs 80.
Now to calculate LTCG in such a situation, Krishnan says FMV of Scheme A will be used. The calculation will take place as follows:
*LTCG up to Rs 1 lakh is ignored in both the cases
FMV in the above example has been calculated as: 35 X 2000 X (5000/2000). If only partial units are sold then, then you will have to substitute the number of units sold accordingly to calculate FMV, adds Krishnan. It is to be noted that here the FMV of scheme B plays no role because the calculation is based on the FMV of your investment as on January 31, 2018 which only relates to scheme A.
CASE B: Calculation of LTCG in equity schemes merged before February 1, 2018 The above mentioned scenario will be applicable to many investors as fund houses have started announcing the merger of their schemes to comply with Sebi's order. There might be some investors whose schemes were merged before tax on LTCG from equity mutual funds was announced on February 1, 2018.
FMV of the new scheme as on 31 January, 2018 will be taken into account for calculating LTCG on equity mutual fund schemes that were merged before the announcement of the budget on February 1, 2018.
Here is how LTCG will be calculated in this scenario. Say you had invested a lump sum amount of Rs 1 lakh in December 2016 in Scheme A and NAV at that time was Rs 20. The scheme was merged with scheme B in February 2017.
As mentioned above, since there is a consolidation of scheme, the transaction will be considered as a switch. Switch-out NAV of scheme A is Rs 25 and switch-in NAV of scheme B is Rs 60. You then sold the units in April 2018 at an NAV of Rs 100.
As per the rules mentioned above, to calculate FMV of such units, NAV of scheme B as on January 31, 2018 is required. Assuming NAV of scheme B as on January 31, 2018 is Rs 80, Chandak explains in such cases, the Cost of Acquisition (CoA) and tax on LTCG will be calculated as follows:
LTCG Calculation *LTCG up to Rs 1 lakh is ignored in both the cases
What you should do Mergers or consolidation can lead to change in the fundamental attributes and investment philosophy of the scheme. Therefore, you should not just consider the taxation angle when deciding on whether you should stay invested or not. See where all the 'new' avatar of the scheme will be investing now to take a call.
SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds
For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300
NHAI, PFC file prospectuses, coupon rate not yet decided MORE debt investment options have opened up for investors with AAA rated tax-free bonds worth over Rs 14,000 crore lined up. The National Highway Authority of India ( NHAI ) and Power Finance Corporation ( PFC ) are offering Rs 10,000 crore and Rs 4,033.13 crore worth of tax-free bonds, respectively, as per prospectuses filed with the Securities and Exchange Board of India (Sebi). Of a Rs 5,000 crore issue by PFC, Rs 966.87 crore has already been raised through private placement on September 28 and November 1. Tax-free bonds give investors tax-free return on any amount invested. In another kind of bonds, the long-term infrastructure bonds, investments up to Rs 20,000 are tax exempt, that is this cap amount can be deducted from the taxable income. Accordingly, the NHAI prospectus has clarified that only the amount of interest from -and not the actual investment on -its new bonds will be tax-free. "NHAI's publ...
Buy Gold Mutual Funds Invest Mutual Funds Online Download Mutual Fund Application Forms Call 0 94 8300 8300 (India) However, this facility is only available to Unit holders who have been assigned a folio number by the AMC. HSBC Mutual Fund has announced that the below mentioned schemes shall be managed by the new fund managers as stated in the table. The effective date will be July 02, 2012. Amaresh Mishra 's will be Vice President and Assistant Fund Manager. Having done a Post graduate diploma in Business Management and Bachelor of Chemical Engineering, he has over seven years of experience in Equities and Sales. Mr. Piyush Harlalka's designation shall be Vice President- Fixed Income. Qualified as a C.A., C.S. and holding M.B.A.( Finance degree), he has over six years of experience in Fund management and ...
An important factor while choosing a financial product is its taxation , and for retirement savings, this is even more important as the sums involved are usually life-long savings. Here's a look at the current tax treatment of three major long-term retirement planning products, which are - Employees' Provident Fund (EPF), Public Provident Fund (PPF) and National Pension System (NPS). EPF The tax treatment is EEE, which means your money is exempt from taxes at the time of investment, accumulation and withdrawal. At the time of investment, the tax deduction is under the limit of section 80C of the Income-tax Act , which is currently Rs 1.5 lakh. Partial withdrawals are also tax-free if made after 5 years of continuous service. If withdrawals are made before 5 years of service, 10% tax will be deducted at source. Exceptions have also been provided for transfer of amount and conditions wherein the subscriber is unemployed for more than 2 months or the loss of job was beyond th...
But luck may not always be on your side. With the frequency of such attacks, as also other risks and unforeseen accidents growing, a wedding insurance is something you may want to look at if a marriage is being planned in the family. Event insurance plans like this is still in its nascent stages due to low awareness. And given the sacred nature of the ritual, nobody wants to discuss or think negative. But as wedding spends and risks grow, it makes sense to cover the potential monetary loss. The policy in those countries even covers the loss of the wedding ring, the wedding gown not reaching on time and even the expenses/loss due to late or non-appearance of the photographer which may mean staging the event once again for the photograph. In India, most insurance companies — including ICICI Lombard General Insurance, Oriental Insurance, Bajaj Allianz and National Insurance — offer wedding insurance. The policy is tailor made to individual requirements and needs. The sum insur...
Best SIP Funds Online HOW HAS DSP BlackRock Small & Mid Cap Fund PERFORMED? With a 10-year return of 14.61%, the fund has outperformed both the category average (12.34%) and the benchmark (10%) by a good margin. Should you invest in DSP BlackRock Small & Mid Cap Fund? This fund invests predominantly in mid-cap stocks but takes a sizeable exposure in small-caps as well. The focus is on nascent companies with high growth potential. The fund manager places emphasis on quality and avoids inferior businesses even if these look tempting from a valuation perspective. Over the past year, the fund portfolio has grown, having added to some of the underperforming sectors like chemicals and healthcare. Its portfolio churn has come down significantly. The heavily diversified portfolio is run completely agnostic of its benchmark index— most bets are from outside the index—which can at times lead to bouts of underperformance as seen in the recent years....
