Beginner

The Hon’ble Finance Minister presented the Union Budget 2020 on 1st February 2020, which has proposed specific changes to the present income tax rates, which will be applicable for the financial year 2020-21 and subsequently, Finance Act 2020 has also been enacted. However, the new tax rates carry certain caveats before the taxpayers can adopt the reduced rates. As such, both the existing & new tax rate structures will continue to co-exist. 

Mutual funds are steadily emerging as one of the most preferred investment products amongst the retail investors for the benefits they bring on the table, including professional fund management at lower costs, diversification, preferential taxation rates for equity funds, etc. However, it is crucial to stay committed to the investment philosophy at all times. 

A Systematic Withdrawal Plan (SWP) is an investor-friendly measure that allows the investors in mutual funds to withdraw funds periodically. As such, one may enjoy the benefits of wealth accumulated in the past through periodical redemptions. Thus, SWP aims to achieve precisely the opposite of what Systematic Investment Plans (SIP) offer.

When it comes to saving from different financial goals, one can choose from a wide range of investment options. Such options may include traditional investment products like Unit Linked Insurance Plan (ULIPs), endowment insurance policies, etc. With the evolution of the financial markets, mutual funds have emerged as an investment option for wealth accumulation and wealth creation. 

In the purview of the COVID-19 pandemic outbreak, the world is currently facing several economic disruptions. However, the current lockdown situation brings the following seven positives with itself to help one set the financial management plans upright. 

Retail investors have continued with their investments in mutual funds through Systematic Investment Plans (SIPs) with monthly SIP inflows in March 2020, hitting an all-time high of more than Rs. 8,600 crores.

Source - AMFI

 However, with the ongoing volatility coupled with the impact on the regular income and cash flows, many investors are considering discontinuation of their SIPs. 

While creating an investment portfolio, it helps to know the tax incidence of different investments. It is usually advised to compare investments in terms of post-tax returns instead of absolute returns. This article discusses key information related to tax on mutual funds in India.

Below are the provisions on taxation on mutual funds:

Benjamin Graham, one of the early followers of fundamental analysis based investing and also Warren Buffett’s professor, had propounded the concept of Mr. Market way back in the nineteen forties to describe the contradictory and irrational traits of investors. Graham described Mr. Market as an investor prone to erratic swings of pessimism and optimism and since majority of the stock market is comprised of such investors, he felt that the market as a whole takes on these characteristics. His advice was that while Mr.

Solution oriented mutual funds are such funds that aim to fulfil the specific financial goals of the investors, like retirement, child’s education, marriage, etc. To encourage the investors to invest for the long term, such funds tend to carry a lock-in period of 5 years or till the attainment of the age of retirement/ child’s majority, whichever is earlier. 

Floater Rate Fund is an open-ended debt scheme predominantly investing in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/ derivatives). These schemes will invest at least 65% of its net assets in floating rate instruments.