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.
<p>Large cap mutual funds invest a minimum of 80% of their net assets in large-cap companies, generally referred to as blue-chip companies. Whereas, mid-cap companies must invest at least 65% of their net assets in mid-cap stocks.</p>
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.
<p dir="ltr"><span>It is said, “</span>one should not keep all his eggs in one basket.” While the equity markets have continued to stay volatile, the investors have started to focus on diversification across different asset classes. To further support the benefits of investing across various asset classes, CRISIL 10-year Gilt Index generated 14.55% returns during the year 2019-20, as against negative returns of 24.85% generated by Nifty 50 Total Return Index. Source: NSE India & Crisil.com</p>
<p dir="ltr"><span>Experts suggest that '</span>one should keep all the eggs in one basket.' This is precisely the premise of diversification. It refers to investing in different assets and products to reduce the overall portfolio risk. The risk gets mitigated as risks associated with exposure to a specific asset category get balanced with other asset classes.</p>
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<p dir="ltr">Planning responsibly for your financial goals is imperative for your financial health. It is said, “financial planning is an ongoing journey and not a destination.” We live in a dynamic world, where the assumptions may be required to be adjusted with the changes in investing preferences. It is also possible that your financial goals or the risk-bearing capacity may have changed with time. </p>
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<p dir="ltr"><span>Income tax laws provide for tax incentives under various sections, but the most commonly used tax benefit is the one allowed under Section 80C of the Income Tax Act, 1961. As per this section, the taxpayers can avail of a tax benefit of up to Rs. 1.50 lakhs from their total income by making certain eligible investments and payments. </span></p>
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:
<p dir="ltr"><span>Equity Linked Savings Schemes (ELSS) refer to the eligible equity funds, which are eligible for benefit under Section 80C of the Income Tax Act, 1961 up to a maximum of Rs. 1.50 lakhs from the total gross income. With its inherent benefits of potential for long term wealth creation along with the lowest lock-in period of three years amongst all the eligible investment options, ELSS has been emerging as the preferred investment choice amongst investors for tax saving purposes. </span></p>
