<p dir="ltr"><span>Retail investors have continued with their investments in mutual funds through Systematic Investment Plans (SIPs) with monthly <a href="https://www.utimf.com/invest-in-sip/">SIP</a> inflows in March 2020, hitting an all-time high of more than Rs. 8,600 crores.</span></p>
<p dir="ltr"><span>Source - AMFI</span></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>
Amidst the full range of mutual fund schemes available for the investors to invest in, it is paramount to analyse a mutual fund scheme objectively. The decision of the investors to invest in a particular mutual fund scheme is often driven by various parameters, including but not limited to the fund performance, consistency of the performance, size of the fund, etc.
<p dir="ltr"><span>All mutual funds houses undertake </span>KYC (Know Your Customer) compliance in pursuance of the Prevention of Money Laundering Act, 2002, and SEBI (Securities & Exchange Board of India) guidelines. This process is made mandatory by the market regulator so that the transactions are seamlessly linked to the investor.
<p dir="ltr"><span id="docs-internal-guid-3e5ef402-7fff-042b-b39a-cbca4365267a">‘</span>Side pocket’ refers to a segregated portfolio in a mutual fund scheme with specific securities that have been affected by a credit event.
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.
