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

Post Office Deposits Interest Rates

Best SIP Funds to Invest Online   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 For further information on Top SIP Mutual Funds contact  Save Tax Get Rich on 94 8300 8300 OR You can write to us at Invest [at] SaveTaxGetRich [dot] Com
Read more

HDFC Capital Protection Oriented Fund – Series II 36M May 2014 NFO

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     HDFC Capital Protection Oriented Fund – Series II 36M May 2014 NFO will be open for subscription from 16th May 2014 to 30th May 2014. The key features of the scheme are as mentioned below:   Type of Scheme A Close Ended Capital Protection Oriented Income Scheme Benchmark Crisil MIP Blended Index Fund Manager Mr. Anil Bamboli , Mr. Vinay R Kulkarni & Mr. Rakesh Vyas New Fund Offer (NFO) Period 16 th May 2014 to 30 th May 2014. Minimum Application Amount Rs. 5000 and in multiples of Rs.10 thereafter Plans/ Options Offered Growth and Dividend Payout Facility Liquidity To be listed For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call
Read more

How to PPF Account extension after maturity

A PPF account can be retained after maturity without making any further deposits. The balance will continue to earn interest till it is closed. Public provident fund or PPF remains one of the most popular savings options for the long term despite a gradual decline in interest rates over the years. PPF accounts have a maturity period of 15 years and they can be extended. If there is no fund requirement, financial planners say, PPF account holders should extend the account beyond 15 years. In terms of income tax implications, PPF accounts enjoy the benefit of EEE (exempt-exempt-exempt) status . Under Section 80C, contribution up to Rs 1.5 lakh in a financial year qualifies for income tax deduction. The interest earned and maturity proceeds are also tax free. What are your options when a PPF account matures? 1) A PPF account can be closed after the expiry of 15 financial years from the end of the year in which the account was opened. 2) The subscriber can retain his
Read more

SUNDARAM SELECT MIDCAP

Best SIP Funds Online   SUNDARAM SELECT MIDCAP is a mid-cap focused fund has shown remarkable consistency in outperforming both its benchmark index and the category over many years. It takes a sharper tilt towards mid-caps compared to its peers. While the fund manager used to take large positions in his conviction picks, he has moderated exposure to his top bets over the past year. He has also chosen to stay away from capital guzzling businesses instead favouring those with efficient capital allocation practices. SUNDARAM SELECT MIDCAP fund boasts of a superior risk-reward profile compared to many of its peers, and while it has underper formed slightly over the past one year, its proven track record in the hands of a capable fund manager provides comfort. It remains a worthy pick in the midcap basket. SIPs are 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 For further inform
Read more

HDFC Prudence Fund - Invest Online

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   HDFC Prudence Fund Balanced funds are excellent investment options for investors with moderate risk tolerance, since they give very good risk adjusted returns. It is very surprising why balanced funds are not nearly as popular as diversified equity funds, despite being around in India for nearly two decades. Balanced funds are essentially hybrid funds with both debt and equity in its portfolio mix, to balance the portfolio risk. These portfolios typically hold up to 70% of its portfolio assets in equities and the balance in fixed income. On a risk adjusted basis, balanced funds have delivered excellent returns compared to other equity fund categories, e.g. large cap or diversified equity mutual funds. The chart below shows a comparison of category returns between large
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