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
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
When it comes to investing in equity markets, investors tend to prefer investing through mutual funds. Investors can invest in a wide range of mutual fund schemes, suiting their investment horizon, and risk appetite. One such investment option is the Exchange Traded Funds which is populary know as ETFs. Equity ETFs tracks an underlying equity index and the main difference between traditional mutual fund schemes and ETF is, ETFs can be traded on the stock exchange.
Investors may choose to invest in equity markets through two primary investment strategies: active and passive. Active investing refers to the active selection of stocks in the portfolio depending on company fundamentals and other parameters. In contrast, passive investing refers to tracking a benchmark index and replicating its composition in the portfolio. When a scheme is actively managed, the fund manager decides which stock to invest and in what proportion to invest.
Public Provident Fund (PPF) has traditionally been one of the preferred investment options to save taxes, as it provides fixed returns through interest income and aims to cater to long-term investment needs. Hence, it suited the preferences of conservative investors looking for assured returns. However, with the evolution of financial markets, increasing awareness of financial planning, and the availability of newer options, investors are exploring choices beyond PPF.
