Skip to main content

Before exiting an equity fund check your tax liability

MUTUAL fund investors often have a tendency to hold on to their investments for a long time without ever looking at it.


There are several problems with this kind of approach.


There could be a situation where the actual investment might be performing badly and the additional holding period does nothing to help the situation.

At the same time, there is also the risk that such a long holding of the lossmaking investment can even take the tax benefit away that otherwise might have been possible on the investment, especially in case of equity-oriented funds.

Here is a look at the issue and why investors need to regularly look at their portfolio to see if some action is required.


Long term: The first thing to constantly keep in mind is about the nature of the investment holding.


When it comes to various investments, including mutual fund units, they can be either long term or short term in nature. If the mutual fund units have been held for 12 months or less, then these would be classified as a short-term asset.

When the holding period exceeds 12 months, then it becomes a longterm asset. The classification of the holding is necessary because this determines the entire issue of whether the position of a loss can actually be salvaged to some extent.


Loss making: There are times when the investment does not work out as expected. It is easy to deal with the situation when there is a gain that is earned on the investment because this will mean just looking at whether there is a tax to be paid and how much the tax amount is.

In case of a loss, there is a far more complicated process at hand that one has to deal with and this includes the act of calculating the exact loss and then ensuring that there is some set off available. The first thing that many investors have to do is to actually accept the fact that there is a loss that they are incurring.

The next part involves looking at the nature of the loss and whether it is something that can be recovered. This is very difficult to judge because nobody knows how the future will actually turn out, but there is always something that often gives an indication to the investor.

A small amount of loss, which takes place due to short-term market movements, is not something serious in an equity oriented fund.

However, if the markets have collapsed and the fund is showing a 3040 per cent loss, then it might just be very difficult to recover for a long time to come. Nature and tax: In case of equity-oriented funds, if there is a long-term loss that is recorded on the sale of the units, then there is no tax impact.

This happens because of the fact that the equityoriented funds have a zero rate of tax on long-term capital gains, so there is no set off available for the loss that has been recorded.

On the other hand, if the units were sold before a year is complete, then there would be a loss all right, but the loss would be available as a set off against some short-term capital gains that has been earned. These are reasons why there has to be a constant evaluation of the portfolio.

It will give the investor an idea whether they need to take any immediate action or they can just sit back and watch the performance of the fund. In cases where the situation does not hold out much hope, the investor would be better off taking the loss in the short term, so at least, there is a set off available for them.
 

Popular posts from this blog

L&T Income Opportunities Fund dividend

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 L&T Income Opportunities Fund declares L&T Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( R /unit) L&T Gilt Investment-DQ 0.3 L&T Gilt Investment Direct-DQ 0.3 L&T Income Opportunities Ret-DQ 0.31 L&T MIP-Wealth Builder-DQ 0.3 L&T MIP-Wealth Builder Direct-DQ 0.3 L&T MIP-DQ 0.3 L&T MIP Direct-DQ 0.3 L&T Short Term Opp-DQ 0.26 L&T Short Term Opp Di...
Read more

Mutual Fund Exit Load Changes

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 Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
Read more

Franklin India High Growth Companies Fund

Franklin India High Growth Companies Fund Online One of the key developments that the Street is keenly waiting for is a cut in interest rates by Reserve Bank of India . With demand rising gradually, a rate cut is expected to boost earnings growth for companies. In such a situation, schemes which invest in high growth companies are best suited, especially when seen from a long-term perspective. One such scheme is Franklin India High Growth Companies Fund. Fund managers Anand Radhakrishnan, Roshi Jain and Srikesh Nair strictly follow valuation parameters when it comes to choosing stocks.Valuation parameters, such as enterprise value, price-to-earnings growth ratio, forward price-to-sales ratio and discounted earnings per share, play a critical role in selecting companies for investments. Taking into account these parameters, the fund managers invest in companies which are poised for high growth in their respective sectors. This approach has been in favour of the scheme and it has perform...
Read more

Debt Mutual Fund Dividends are Taxable

DDT is deducted when a non-equity fund declares dividends. Equity and balanced fund dividends are tax-free The AMC is correct to deduct the dividend distribution tax (DDT) as it is mandated by tax laws. DDT in mutual funds is deducted every time a non-equity fund declares dividends. Equity fund and balanced fund dividends are tax-free . It is possible that you have invested in a non-equity fund for the first time or have received the dividend under a non-equity fund for the first time. That is why this is the first occasion when you have come across DDT.   The rate at which non-equity schemes deduct DDT has also gone up after the July 2014 budget. This is due to a change in calculation methodology. Earlier, if the fund has to declare a dividend of R 100, it used to make a provision for R 128.3, paying R 28.3 to the taxman and distributing the balance to the investor. This allowed the investor to bear less tax since the effective tax rate was 22.07 per ce...
Read more

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- 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. ...
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