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.
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:
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.
ETF stands for Exchange Traded Fund. As the name suggests, ETFs can be traded on stock exchanges, just like other stocks listed on stock exchanges.
As per the SEBI Guidelines, ETFs must invest at least 95% of their net assets in the underlying index's securities. Thus, ETFs adopt passive investment strategies tracking different indices, viz., equity, debt, or commodities.
NAV stands for Net Asset Value, which serves as the base and the transaction price for all the investment transactions, including purchase, redemption, switch transactions in a mutual fund scheme. For example, if NAV of mutual fund scheme is Rs. 10 and the investors have invested Rs. 5,000, 500 units will be allotted to the investor.
e-NACH has been a recent entrant into the mutual fund investment process, in a bid to make the entire investment process digital and paperless. This article aims to discuss the NACH mandate and the registration process in detail.
ELSS (Equity Linked Savings Scheme) funds are among the most popular mutual categories amongst the retail investors for investing in open-ended equity funds, as reflected by the number of investor folios. As of 30th June 2020, ELSS funds are present in 1.24 crore investor folios out the total 6.73 crore investor folios in equity-oriented schemes. The aggregate Assets Under Management (AUM) of Rs. 90,024 crores are in the ELSS category funds. Source: Association of Mutual Funds in India – AMFI
In mutual fund transactions, the time of receipt of the transaction and money affects the applicable Net Asset Value (NAV). To bring uniformity in the operational processes, SEBI (Securities & Exchange Board of India) has prescribed the cut-off timings for mutual fund transactions across all the mutual fund houses. Therefore, mutual fund transactions are processed based on the prevailing NAV of the respective scheme, if the fund house receives the transaction/ funds before the cut-off time.
Systematic Investment Plans (SIPs) are increasingly becoming the preferred route for investing in mutual funds, as is evident from the consistent SIP inflows. Indian Mutual Funds currently have about 5.93 crore (59.3 million) SIP accounts through which investors regularly invest in Indian Mutual Fund schemes.
Source: Association of Mutual Funds in India – AMFI
