When one is investing in equity markets through mutual funds, one is exposed to two types of risks – systematic risk and unsystematic risk. While systematic risk denotes the risk of changes in the macroeconomic environment impacting the investment portfolio, unsystematic risk refers to the risk of choosing a wrong company to invest in, thus making a wrong investment decision.
Market indices such as S&P BSE Sensex, NSE Nifty50, etc. are created by adopting scientific methodologies and back-tested techniques. As such, the investors may wish to invest in such indices to have smooth investment experience. However, since such indices are not tradable security in themselves, it is a difficult proposition for the investors to construct a similar investment portfolio, which replicates such an index. Index funds may be suitable to meet such investing needs.
Equity Linked Saving Schemes (ELSS) is one of the available investment options under Section 80C and is steadily emerging as a preferred investment choice amongst the investors for tax saving. This is also reflected in the ELSS Category AUM (Assets Under Management) of Rs. 1.04 lakh crores as on 31st December 2019 amounting to around 4% of the overall industry AUM.
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Amidst the persisting market volatility, the monthly SIP (Systematic Investment Plan) inflows into mutual funds have sustained over Rs. 8,000 crores for 16 months. (Period- Dec 2018 – March 2020). Source: Association of Mutual Funds in India
ELSS (Equity Linked Savings Scheme) has been one of the available investment options under Section 80C, which allows a tax benefit of investment up to Rs. 1.50 lakh in a financial year. Further, besides the tax benefit, the taxpayers can also invest in ELSS to club their financial goals and tax plans.
Mutual funds offer a wide range of investment options to the investors, to suit different risk profiles, investment horizon, and financial goals. An investor may choose to invest in equity schemes, debt schemes, hybrid schemes, solution-oriented schemes, index funds, etc. as per their financial plans. One of the primary financial goals for a parent is planning for their child’s education. With high emotional value attached to this goal, one always intends to plan the best for his/ her children.
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.
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.
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.
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Below are the provisions on taxation on mutual funds:
