Thursday, August 25, 2016

The taxation of your mutual fund

The tax imposed for Equity Funds, held for less than a year before redemption, is 15%. Whereas, the same if held for more than a year, are tax-free at redemption.

In case of debt funds, the tax amount calculation is as per the tax slab, if the investor redeems the funds before 3 years. The same if redeemed after 3 years are taxable at 20% with indexation.

In addition, the dividend distribution tax applies just for the debt funds (not the equity funds). The imposition of the tax rules is a motivation factor to invest in mutual funds for a longer period, and not indulge into frequent trading.

These above-mentioned reasons were just a few of the many, behind the normal failure and bad performance of the mutual funds. Therefore, considering these before and even after making a mutual fund investment may help you make better decisions.

Always remember, mutual fund investments are subject to market risks. Therefore, think and read the offer documents carefully before investing, as says its disclaimer.

To have long term success with your investments, having a well drafted financial plan will be of immense help.

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