When to invest in mutual funds

Unlike stocks, you don’t have to wait long to invest in mutual funds. Fund managers and their team of analysts only select the right stocks and assets and investors benefit regardless of the market situation. In addition, when you invest in a SIP, you benefit from both declining and high market cycles. When the markets fall, you end up buying more shares in the Fund because the stock prices would have fallen to their new lows, and when the markets rise you buy fewer shares. This is known as the average cost in rupees. This benefit is only available when investing in mutual funds through SIP. So you don’t have to wait long to invest in mutual funds. The best time to invest in mutual funds is now!

Taxation of mutual funds

Dividends offered by all UCITS are now taxed in the traditional way. They are added to your general income and taxed according to your tax return. The capital gains offered by SII are taxed according to the duration of the participation and their type. The holding period is the time you’ve invested in a mutual fund.

Equity funds

If you exit an equity fund within a year, you will receive short-term capital gains. This income is taxed at the fixed rate of 15%. By exiting an equity fund after a one-year holding period, you can realize long-term capital gains. Long term capital gains of up to Rs 1 lakh per year are tax free. Any long-term income over Rs 1 lakh per year is taxed at a fixed rate of 10% and no indexation benefit is granted.

Debt fund

Short-term capital gains are realized by withdrawing from a debt fund operated within three years. This income is added to your general income and taxed according to your tax return. Long-term capital gains are realized when you pay off your debt fund holdings after three years. This income is taxed at a rate of 20% after indexation.

Hybrid or mixed funds

If a hybrid’s equity exposure is greater than 65%, the fund will be taxed like an equity fund. Otherwise, the tax regulations of the Debt Fund apply. So before you decide to invest in a hybrid fund, you need to know your equity exposure in order to properly plan your taxation.

How can you save taxes with mutual funds?

You can save up to Rs.46,800 per year in taxes by investing in an Equity Linked Savings Program (ELSS), the best tax investment under Section 80C. ELSS FCP’s assets are mainly divided into equities and equity-linked securities.

ELSS mutual funds are the best tax asset under Section 80C of the Income Tax Act 1961. They have a lock-up period of just three years, the shortest of all investments. These mutual funds have the potential to generate returns in the 12% to 15% range.

ELSS funds are the only tax efficient investment with the potential to generate returns above inflation. Therefore, investing in ELSS mutual funds gives you the double benefit of tax deductions and wealth accumulation over time.

Who Should Invest in Mutual Funds?

Anyone with a specific financial goal, be it short or long term, should consider investing in mutual funds. Investing in mutual funds is a great way to achieve your goals faster. There are mutual fund plans for everyone. Investors should assess their risk profile, time horizon, and goals before investing in mutual funds. For example, if you are risk averse and plan to buy a car in five years’ time, you might want to consider investing in public funds. Those who are willing to take risks and want to buy a home in fifteen or twenty years should invest in equity funds. If your investment horizon is less than two years and you want a higher return than a regular savings account, consider investing your excess funds in a liquid fund.