If you invest in mutual funds, you must have often heard about NFO. When an AMC opens a mutual fund scheme to the general public for the first time, it does so through NFO. Just as a company is listed for the first time in the stock exchange during IPO, in the same way any new scheme in mutual fund is launched for the first time through NFO. You can also call it IPO of mutual fund. “What is NFO” Through this article, we will try to understand all the processes of NFO and how it is beneficial for us.

What is NFO?

NFO means: New Fund offer.

NFO is the process through which units of a mutual fund scheme are made available for purchase for the first time by an AMC (Asset management company). Whenever a mutual fund house starts a scheme for the first time, it is first opened for subscription to the general public through NFO. This subscription usually remains open for 10 to 15 days during which we can buy units of the mutual fund at its face price i.e. Rs 10. After the closure of the NFO, the money invested by the people in its subscription is invested in its asset class to build the portfolio of the fund. This asset class can be stocks, government securities or commodities. Depending on the performance of these assets, the NAV of the units of the mutual fund scheme increases or decreases and the higher the NAV increases, the better will be your returns.

Types of NFO

NFO can be mainly of 3 types:

Open Ended: Open ended funds are those which are always open for investment. In these you can invest and redeem money anytime. If NFO of an open ended scheme is launched, it is reopened for investment a few days after the subscription is closed.

Close Ended: You can invest in this type of fund only during the NFO period. Once the NFO is closed, no investment can be made in it. On maturity of these funds, the principal amount along with the return is credited to the customer’s account.

Interval Fund: Interval fund has the characteristics of both open ended and closed ended funds. These funds are opened for a fixed time interval during which investment and redemption can be made only in them. Apart from this time period, no transaction of any kind can be done in these funds.

How does NFO work?

During NFO, an AMC or fund house offers its new fund to investors for subscription for the first time. The following steps are involved from its launch to unit allotment.

NFO Face: AMC launches a new scheme and does its marketing and advertising. In this, it makes common people and big investors aware about its features, nature and objectives.

Subscription: Common investors can invest in these during the subscription period. During this phase, units of the mutual fund are offered at face value which is usually Rs 10. NFO subscription remains open for several days.

Minimum Investment: A minimum amount is set by the mutual fund house for investment in NFO. The investor has to invest equal to or more than this amount.

Allotment: After the end of the NFO tax period, units are allotted to the investors according to their investment. After allotment, the money received from subscription is invested in its theme asset class to build the fund’s portfolio.

Trading: After the subscription is over, the NFO opens for trading to the general public after a certain time period. Here investors can buy and sell mutual fund units anytime.

How to invest in NFO?

It is very easy to invest in NFO in India. For this you:

First of all choose the new fund offer in which you want to invest. want. Different AMCs in the market keep launching NFOs based on different themes. You can choose one according to your investment goal, risk and objective.

If you are already an investor in financial security then your KYC must be made, if you are investing in mutual funds for the first time then make your KYC first. You can make this by applying online or submit offline application to KRA.

After this you can submit NFO application through any mutual fund distributor, direct AMC or online platform. Along with the application, you also have to make payment for the applied unit.

Once the NFO application is submitted, wait for its allotment. Once the allotment is done, you are provided with the account statement and other account related things.

What things should be kept in mind in NFO investment

Investment goals: The reason or goal behind investing can be different for every investor. This goal depends on their age, income and risk. Therefore, before investing in any NFO, it is important to analyze things like nature, objective, theme and risk of the fund and keep in mind whether it is matching with the investment goal or not.

Fund House Performance: We invest in any investment tool with the hope that it will give us a good return and help in increasing our wealth. Therefore, whatever AMC you are going to invest in NFO, definitely find out the performance of its other funds and the capability of the fund manager.

Expense Ratio: Expense ratio means the charges that mutual fund houses charge from investors for the management of their funds. The higher their ratio, the greater will be the impact on investment returns. Therefore, before investing in NFO, keep its expense ratio also in mind.

Minimum Investment and Exit Load: Before investing in NFO, know what is the minimum investment limit in it. Exit load means the charges levied on taking redemption from the fund. Depending on the theme of the fund, these charges may or may not be non-applicable. Therefore, keep in mind that if you are investing for short term, then there should not be any or much exit load on it.

Comparison with old funds: There may already be funds available in the market matching the theme of NFO. You can improve your investment decision by comparing the new fund with the old one.

Offer Document: When an NFO is launched, AMC also publishes the offer document related to it. In this document, necessary analysis is given on the basis of theme, objective, asset class and market data etc. of NFO. By reading this offer document, you can gather all the necessary information about NFO.

Difference between NFO and IPO

When an AMC launches and offers a mutual fund scheme for subscription for the first time, it is called NFO. On the contrary, when a company lists its shares for the first time in the stock exchange for investing and trading by the common people, then it is called IPO. Which is called Initial public offer.

In NFO, units of mutual funds are bought and sold which are managed by the fund manager, whereas in IPO, company shares are bought and sold for tax reasons, the company aims to raise capital for its expansion and repayment of debts. It is possible.

The returns of NFO depend on the assets being invested in it and the ability of the fund manager, whereas the returns of IPO depend on the performance and valuation of the company.

Whenever AMC wants to launch a new mutual fund scheme, it can do so through NFO, whereas for a company, IPO is a one-time process through which it transforms from private to public.

Benefits of NFO

NFOs are usually launched on the basis of new themes and strategies. This brings a new investment opportunity for us.

In NFO, units of mutual funds are available for investment in face value which is usually Rs 10. In this way investors can buy mutual fund units in the initial phase with less money.

NFOs are launched keeping in mind the present situation and sentiment of the market. These often have the ability to perform better than the older funds running in the market.

Disadvantages of NFO

We can track old mutual funds on the basis of their past performance and historical factors which help us in taking right investment decisions but in the case of NFO, there is no past performance record of the fund due to which mistakes can be made in taking investment decisions. Might be possible.

Similar to the funds being launched in NFO, funds of other mutual fund houses may already be in the market, which are easy to analyze on the basis of historical data.

The future performance and success of NFO is not guaranteed which is not good for the returns to the investor.

Conclusion

Amc launches a new mutual fund scheme through NFO and this is a great opportunity for people to invest on a fresh theme and according to the ongoing market situation. During NFO, investors can buy units of mutual funds at face value which is usually Rs 10. Investing in NFO can give you good returns in the long term, but before investing in it, it is important to check the facts related to your objective, risk and capital.

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This is a closed ended debt mutual fund, in which we can invest for a fixed time period. Under FMP, investors invest a fixed amount and it is returned on maturity after a fixed time period. This investment plan is usually for 1 to 3 years and the indicative return can be 7% or more.

FMP is one of the low-risk investment options in which you can invest only during its subscription period i.e. NFO. This is a fixed interval, closed ended scheme which you can also consider as an alternative to FD. By investing in this, you can balance your portfolio and if a 3-year scheme is chosen, you can also take the benefit of indexation in long term capital gains.

Features of FMP

Closed Ended Scheme: FMPs are closed ended schemes, that is, investments can be made in them only when an AMC opens them for subscription for the first time through NFO. Once the subscription is over, they cannot be invested in and they remain locked in till their maturity.

Lock in period: As already mentioned, there is a lock in period in FMP. It is issued for a fixed time period such as 1 year, 3 years or 5 years. During this period, no investment or redemption can be made in them and on the arrival of maturity date, the entire money of the investor is returned to his bank account along with the return.

Investment Asset: FMP falls in the category of debt schemes, that is, to generate income, the fund manager invests in debt instruments like government and corporate bonds, commercial paper, treasury bills and debentures, etc., whose maturity time is also the maturity of the scheme. Is equal to time. For this reason, the returns received from them are less than equity mutual funds but stable.

Low Risk: FMPs are a low risky investment option due to investment in the debt market and stable returns. The indicative returns that can be earned on these are disclosed at the time of NFO or subscription itself.
How does FMP work?

Investment Period: Before investing in FMP, you should know for how long you have to invest. In FMP, you have to choose the scheme for a fixed time period, like 1 year, 3 years, or 5 years. During this time, your money remains invested and no withdrawal can be taken from it. Therefore, invest only that money in FMP which you do not need in the short term.

Portfolio Structure: Once your money is invested in the FMP, it is invested by the fund manager in debt instruments such as government bonds, corporate bonds, and other fixed income securities keeping in mind their ratings and risk. These instruments operate on fixed interest rates, which is why the returns in FMP come with less risk and are stable compared to other investment options.

Lock in period: There is a lock in period in FMP, that is, you cannot withdraw your invested money during the lock in period. This keeps your money fixed and less affected by market fluctuations.

Returns: The AMC informs the investor when the maturity date of the FMP arrives. On maturity, the investor’s money is credited to his registered bank account along with the returns.

How to invest in FMP?

Like investing in any mutual fund, investing in FMP can be done. Here it has to be kept in mind that since FMP is a closed ended fund, investment can be made only when it is opened for subscription. Any scheme is opened for subscription for the first time during NFO i.e. New Fund Offer.

Almost every AMC comes up with new funds from time to time in which units of the fund are offered for purchase at its face value, which is usually Rs 10. FMP is also opened for investment by common people through this, where any investor can invest in it through online or offline medium.

To invest online in FMP, you can take the help of any online broker, registrar or AMC’s own website. Some of these are groww, etmoney, mycams etc. Your KYC must be done before investing in any mutual fund scheme. Even if your KYC is not made, you can apply for eKYC on these platforms or fill the offline KYC form and submit it.

After completion of all these processes, you can easily apply for NFO of FMP. After which after about 5 days you are allotted mutual fund units.

Who should invest in FMP?

FMP is a low risk debt mutual fund. The value of investments made in these increases or decreases according to daily changes in NAV. FMP can generally be a good option for those who can bear some risk and want better returns than FD.

If your investment horizon is not short term, that is, if you are going to need the money after 1 or 3 years, then you can still invest in FMP. But here it is also important to keep in mind that due to being locked in, you can get your money back only on maturity.

Benefits of FMP

Stable Returns: Investment in FMP is made for a fixed time period, the indicative returns of which are already known to you. Therefore, it is very beneficial for those people who want to invest in a fixed return instrument in a short period of time with low risk. Apart from this, during the downfall of equity market, these instruments can be a great means to protect your capital and generate a good return.

Low expense ratio: FMP has a lower expense ratio than other mutual fund plans. Expense amount means the charge that a mutual fund house charges from the investor in return for managing the scheme. Its reduction also increases the returns you get.

Risk Management: FMPs are managed by professional fund managers whose main objective is to generate good returns by investing in fixed income instruments. Because they invest only in the securities of good and stable private and government companies, hence the risk involved in investment is reduced to a great extent.

Better returns than FD: The returns in FMP are better than any other fixed income instrument like bank FD, RD, PPF etc.

Low Risk: The risk involved in FMP is much lower than equity mutual funds, so it can be a great option for investors looking for better returns with less risk.

Disadvantages of FMP

Liquidity and Lock-in: FMPs have a lock-in period, which requires you to keep your money invested for a fixed period of time. If you need money in emergency, you have to wait. Although FMP is traded in the secondary market i.e. stock exchange after allotment, it is not easily encashed due to lack of flexibility and liquidity.

Interest Rate Risk: FMP involves interest rate risk. The money you invest in FMP generates returns through fixed income instruments, which are influenced by market and economic conditions. If interest rates increase in the market, your returns may reduce.

Credit Risk: In FMP your money is invested in corporate bonds, government securities, or other debt instruments. If a company defaults or their financial condition worsens, your money may also be at risk.

Conclusion

Investment in FMP helps to diversify and balance your portfolio. It gives you a good stable return with low risk, which many people need. But before investing in it, it is important to keep some things in mind, like what is your investment goal, or if you are going to need money in short term, then instead of putting it in a lock-in instrument, you can invest in a liquid fund. Can.

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Absolute return is a simple concept that tells you the total profit and loss on your investment without taking into account any time factor. In simple words, it tells you the total return you got in your investment. It does not take into account the time period for which the investment has been made, or the benchmark against which it is compared. It helps in telling the total returns from the beginning of investment in mutual fund or any other instrument till its present time.

How does absolute return work?

Absolute return is one of the easiest and most accurate ways to calculate your investment’s performance and the returns it provides. Using this, we are able to know how much return we have received from our investment time period to the present value of the investment.

Through this return, fund managers and investors can estimate how effective their investment strategy is, and whether they should work further according to this strategy or not. Unlike other returns, profits and losses here are not compared to any benchmark, nor does it matter what the market condition has been during this period. Overall, it shows the difference between the time period of your investment and its initial value in percentage format, so that we can make a correct opinion about our investment.

When is absolute return used?

Every investor, whether long term or short term, wants to know the risks and rewards involved in the investment he makes. This type of investment is usually done in market linked instruments like mutual funds, stock portfolio etc. Using absolute returns, investors can track the returns generated by investment instruments such as mutual funds over a given period of time. A good return confirms that the invested scheme has performed well in the past, and similar performance is expected in the future. All these factors help an investor in taking long term investment decisions, and choosing a good investment instrument.

Importance of Absolute Return

Simple Calculation: Calculating Absolute Return is very easy. Any common citizen or investor can easily understand this. For investors who do not have much knowledge of market ratios and financial formulas, this is a great way to know the performance of their investments.

Portfolio Diversification: Absolute return refers to the simple return of an investment without any fundamental or benchmark factors. Keeping this in mind, the investor can check his various investment returns and take appropriate steps to diversify the portfolio.

Short Term and Long Term Goals: Absolute Return calculates returns without taking the time factor into account. In this way, it can be beneficial for both long term and short term investors. This helps them in taking future decisions related to their investment by looking at its current value.

Effect of market volatility: Market volatility is not taken into account in the calculation of absolute returns. It only works to show positive or negative returns while making the investment returns stable. Thus, it is beneficial for those investors who do not have much knowledge of various market factors and consider total returns as the benchmark for their investment decisions.

How to calculate absolute return?

Absolute returns can be calculated very easily. For this, the principal value of the investment is subtracted from the current value of the investment, after which the value obtained after dividing it by the current value is the absolute value. For example, you invested Rs 1 lakh in a mutual fund on January 1, 2023, the value of which has increased to Rs 1 lakh 30 thousand in December 2024. Your total profit in this case was Rs 30 thousand. By converting this into percentage, we can find out the absolute value, for which the formula given below is used.

Absolute return’s formula

Absolute Value = ((Current price – Purchase price) / Purchase price) * 100

Using the example values above:

Absolute Value : ((130,000-100,000)/100,000)*100 = 30%

Difference between absolute and annual return

Conclusion

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CRR means: Cash Reserve Ratio

This ratio is an important tool determined by RBI, which helps in controlling the money supply and liquidity in the country. CRR determines the minimum percentage according to which all banks are required to keep some cash and deposits with the RBI as reserves. This percentage is fixed by RBI and every bank is required to follow it.

CRR works to reduce liquidity risk in the country’s economy, where if people need money at once during an emergency, then the bank has sufficient funds to meet the demand. All banks must deposit funds with RBI as per the CRR ratio, failing which they may have to face penalties.

How does CRR work?

CRR plays an important role in controlling financial stability and inflation in the country. This is an important part of monetary policy, which helps in controlling the flow of money in the country. Under this, banks have to keep a certain part of their deposits with RBI as reserve. By increasing or decreasing the CRR rate, the Central Bank maintains the financial stability of the country.

If the CRR rate in the country is high, then the bank has to keep a large part of its deposits with RBI. Due to this, less money is left with the bank and due to shortage of money, banks are not able to give more loans to people and businesses. Due to people not having much money, their expenses will reduce, due to which the demand for products and services will also reduce. If demand is low and supply is high, the price of products and services will be low, which helps in keeping inflation low.

On the contrary, if the CRR ratio is low then the bank will have more deposit money, which it will be able to give to people through loans and other lending tools. As people have more money, their spending power and demand will increase, which boosts the country’s economy and production.

How is CRR calculated?

There is no fixed formula to calculate CRR. Generally it is calculated as a percentage of Net demand and Time liabilities (NDTL) of banks. NDTL includes funding of bank’s savings account, current account, RD and fixed deposits etc.

For example, if the bank has Net Demand and Time Liabilities of Rs 500 crore, and the CRR rate is 4%, then the bank will have to keep Rs 2 crore with RBI as cash reserve ratio.

Importance of CRR

CRR is an important part of monetary policy and it helps in managing money in the country and controlling its flow in the economy. Apart from this CRR main features:

Financial Strength: CRR ensures that the bank has adequate funds available in the form of deposits at all times. In this way, in case of emergency, people do not have to face any kind of problem regarding money.

Control on inflation: RBI controls inflation by controlling the rate of CRR. As already mentioned, if the CRR rate is increased, it helps in controlling inflation, whereas by reducing CRR, demand and production in the economy is promoted.

Balancing liquidity: The flow of money in the country is controlled through CRR. This confirms that there should not be more money in the economy than is needed when needed and if the functioning of the economy is to be accelerated then funds and resources should be available to the people without any problem.

Base Rate: CRR plays an important role in deciding the base rate. Base rate is the minimum rate, considering which any bank can lend money to people as a benchmark.

Why is CRR changed?

According to economic and government policies, CRR is changed from time to time, and it is necessary to do so. When the economy or people have too much money, it causes inflation, because in case of more money, people spend more, which increases demand and due to increase in demand, inflation also increases. Through CRR, RBI can increase or decrease money and its flow in the country, which helps in controlling inflation. There are many such economic and financial reasons due to which the government has to make changes in CRR.

Current CRR rate

The current CRR rate in India is 4.5%. That means if a bank has a deposit of Rs 1000, then it will have to keep Rs 450 with the Central Bank as CRR.

Difference between CRR and SLR – Difference between CRR and SLR

Conclusion

CRR is an important tool of monetary policy which the Central Bank keeps using from time to time. It is used not only in India but by all the banks of the world, which works to maintain balance in the economic and financial condition of the country.

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Capital gains is the tax you pay on the profit you make on selling an asset. These assets can include stocks, bonds, digital assets like cryptocurrencies and NFTs, jewelry, coins, and real estate, etc. In other words, when you sell an asset at a price higher than the purchase price, you make some profit due to this difference in price. We call this profit as capital gain, and the tax levied on it is capital gains tax.

It is important to note here that capital gains tax is applicable only on the profit made and not on the entire value of the asset or investment. The rate of this tax varies depending on the period of holding the asset. The assets on which this tax is levied are called capital assets. Let us know which items come under the purview of capital asset.

What are capital assets?

• Capital assets include property and goods that you own and that ownership can be transferred. These include:
• Real Estate: Land and land-related assets such as houses, shops or agriculture and industries are major capital assets.
• Equity Shares: When we buy shares or shares of a company, they also come under the category of capital asset.
• Gold: Gold and coins made of gold, jewellery, idols etc. are also capital assets.
• Antiques and artwork: Antiques or artwork are also considered capital assets.
• Fixed Deposits (FD) and Bonds: FDs, bonds and debentures etc. are also capital assets.

For businesses, a capital asset is property that has a useful life of more than one year and is not planned to be sold in the course of day-to-day business operations. For example, if a company buys a computer for its office, that computer is its capital asset. Similarly, if another company buys the same computer to sell, it will be counted in the inventory.

Capital assets can be tangible and intangible. Most capital assets include buildings, land, houses etc., and these are tangible capital assets because they can be seen and touched. Whereas trademarks, brand values, etc. come under the category of intangible assets because they can neither be seen nor touched.

How many types of capital assets are there?

We can mainly divide capital assets into two parts:

• Short term capital asset and long term capital asset

Short Term Capital Assets: Short term capital assets are those assets which we hold for a short period of 24 to 36 months. This holding period may vary depending on the type of asset. For example, if the asset is any property, land or property which we sell before 24 months, then it will fall in the category of short term capital asset.

Similarly, if equity shares or equity related instruments of a company are encashed before 12 months and debt mutual funds which are sold before 36 months, they also come under short term capital assets.

• Long Term Capital Asset

Assets which are sold after 12 to 36 months are called long term capital assets. As mentioned above, if a property is sold after 24 months, stocks or equity mutual funds which are sold after 12 months and debt bonds and mutual funds which are sold after 36 months are counted as long term capital assets.

How many types of capital gains tax are there?

Capital gain is capital like asset. Capital gain tax is also of two types:

Short-term capital gains tax: Short-term capital gains tax is levied on profits made on assets that are sold within 12 months. Here it must be noted that it is not necessary that this time period be only of 12 months. This time period may be different for different capital assets.

Long Term Capital Gain Tax: When we hold a capital asset for a maximum of 3 years and then sell it, the tax levied on it is called Long Term Capital Gain. Here also it is important to keep in mind that the time period for capital gain calculation may be different for different assets.

The applicable capital gains tax as per the holding period of the capital asset is shown in the table below.

How is capital gains tax calculated?

The calculation of capital gains tax depends on the capital asset and the short term or long term tax applicable on it. Tax will also be calculated according to the type of capital asset. The following values are taken into account to calculate capital gains tax.

Full Value: Full value is the amount you get when you transfer your capital asset to another party. That means, if you have sold a capital asset for Rs 10 lakh, then that Rs 10 lakh will be the full value of that asset.

Cost of Acquisition: The price at which you purchased the asset. According to the above example, if you bought an asset for Rs 5 lakh, and after some time sold it for Rs 10 lakh, then Rs 5 lakh will be called the cost of acquisition of that asset.

Cost of Improvement: The amount spent by you on improving an asset after purchasing it is called cost of improvement. If any improvement cost is incurred before April 2001, it is not included in the cost of Acquisition to calculate capital gain.

Asset transfer expense: Asset transfer expense includes the expenses incurred to transfer the ownership of an asset to another party. For example, house registry, broker’s fees etc.

Cost of inflation: Inflation means inflation. Inflation increases year after year, due to which the value of money decreases. Similarly, if you hold any asset and sell it after a long time, then inflation cost also has to be included in the profit.

After knowing all the above mentioned things, you can calculate the capital gain, according to which tax is applicable.

To calculate short term capital gain:

To calculate long term capital gain:

Capital gains tax rate

Capital gains tax exemptions

Due to capital gains tax, we have to deposit a large part of our profit as tax to the government. To save our tax, we can claim exemption in tax under many sections of income tax. These are called capital gains tax exemptions, which are explained below:

Section 54: Exception to Section 54 is applicable in cases where the money received from sale of a house is invested in the purchase or construction of another house or property. From the Budget 2014-15, the exemption under this section has been limited to the purchase of one house only, and this exemption can be availed by the taxpayer only once in his lifetime, provided the capital gain limit should not exceed Rs 2 crore. . For this exemption the following conditions have to be fulfilled:

• The taxpayer has to invest only the amount of capital gain, if the amount invested out is more than the capital gain, then the exemption is limited to the amount of capital gain only.
• The new property can be purchased 1 year before the old sold property or 2 years after the sold property.
• If the capital gain money is invested in the construction of a new house, then the construction should be completed within 3 years of the sale.
• If the new property purchased or constructed is sold within 3 years, the exemption can be withdrawn.

Section 54F: Exemption under Section 54F applies to long-term capital gains arising from sale of property other than house. Unlike Section 54, to claim this exemption, you have to invest the entire amount received from selling the property in the purchase of a new property. To claim it you need to:

• Investment has to be made 1 year before the sale or 2 years after the sale.
• If the money is invested in the construction of a property, it should be completed within 3 years of the sale.
• To be eligible for the exemption, the sale proceeds can only be invested in a property or its construction, and if the property is sold before 3 years, the exemption can be withdrawn.

Section 54EC: To avail exemption under this section, the long term capital gain arising from sale of long term asset has to be invested in 54EC bonds which are also called capital gain bonds. According to this :

• The property sale proceeds should be invested in capital gains bonds issued by REC, PFC or NHAI. This investment can be made up to a limit of Rs 50 lakh.
• The maturity period of these bonds is 5 years, and every year you are paid a fixed interest on the investment amount.
• The profit or capital gain from sale of property has to be invested in Capital Gain Bond within 6 months before ITR filling.

Section 54B: This exemption covers long or short-term capital gains arising from sale of land used for farming. This land should be used for farming for at least 2 years. The amount received from sale should be reinvested in some other agricultural land within two years of sale.

Section 54D: Capital gain arising from sale of land which is used for industrial purposes. To take advantage of this:

• The capital gain amount should be used only for the purchase of industrial property or building.
• The land or bidding being sold should have been used for industrial or business purposes for two years before the transfer.
• The funds received after selling or transferring the property should be invested in a new property within 3 years.
• If the price of the new property is more than or equal to the sale price, tax exemption is applicable on all capital gains.
• If the value of the new asset is less than the amount of capital gain, then only the capital gain equal to the value of the newly purchased property will qualify for tax exemption.

Conclusion

Capital gains tax is an important part of the Indian taxation system. If you have made any capital gain or profit on selling any asset then it becomes necessary to include it in ITR. Most capital gains or losses are reported in ITR2 or ITR3, and you can also claim exemptions under various sections of income tax. To take full advantage of these exemptions, you need to know the asset’s holding period and tax rate, or you can make better financial planning decisions by taking help from a finance professional.

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In today’s era of inflation, we all need a means of investment which can give good returns even with less investment and mutual funds fit the bill perfectly. Like any other investment instrument, it is also not completely safe, but by keeping some things in mind, we can not only choose a good mutual fund scheme but can also increase the returns of our investment manifold. Is. So the question arises, what are the things that should be kept in mind before investing in any mutual fund scheme? In today’s article, we will know these things. So that even if you have very little knowledge of finance, you can still take a better decision.

Risk: Every scheme of a mutual fund has its own risk level which is shown in the form of a riskometer in the scheme document. Similarly, according to the age and income of the investor, he has his own capacity to take risk. While choosing any scheme, pay attention to its risk level. Equity and equity related schemes fall in the category of high risk, whereas in debt schemes the risk is significantly reduced.

If you are also young, earning well and want to invest for long term goals then equity i.e. high risk high return can be best for you and if you are near retirement and want to invest in a stable investment without taking much risk. If you want to get returns then you can invest in debt and money market funds.

Investment Goal: Investment goal means for what purpose you want to invest. Everyone’s dreams and needs are different. Some have to save for their children’s marriage or some have to invest to buy a house. Similarly, their time period may also be different. If you are investing for a specific objective, choose the scheme accordingly. Like Children Career Plans have been made by AMC to fund children’s education and marriage etc. On the other hand, if you want to avail the benefit of high returns or tax savings, you can invest in Equity Related Tax Savings Scheme (ELSS).

Entry and Exit load: In many mutual fund schemes, if you take redemption before a fixed time, i.e. sell the unit, then you have to pay some charge in the form of a fixed percentage. In most equity schemes, if you take redemption before one year, you may have to pay an exit load of up to 1%. However, in some equity schemes it can be more than 1%. Therefore, while investing, keep in mind that even if you have to take early redemption in case of any emergency, minimal charges will be incurred and you will be able to avail maximum returns.

Direct and Regular plans: Nowadays many apps like Grow, Zerodha coin etc. allow investors to invest directly without having to deal with any agent. Direct plan is good in a way and it gives higher returns on your investment in the long term because it does not include agent’s commission. But, if you are a new investor and have very little knowledge about the market, then this decision can lead to loss instead of increasing your returns.

Therefore, take steps according to your knowledge and understanding. If you have very little knowledge of the financial market, then it is not a bad thing to invest with the advice of an expert who will balance your portfolio from time to time according to the market situation.

Expense Ratio: Every AMC charges certain fees for managing a mutual fund scheme which is necessary to meet the management expenses of the AMC. This ratio is different for every scheme. Therefore, while choosing a mutual fund, keep in mind that the expense ratio of the scheme should be minimum. This expense ratio can be between 0.80 to 2.80% which also keeps changing from time to time with the change in management. A low expense ratio confirms that only a small portion of your investment is being used by the fund house for expenses and more and more is being invested in the schemes.

Fund Performance: Before investing in any scheme, do research on its average returns over the past years. Although it does not guarantee the future performance of the scheme, it still gives an idea about the ability of the fund manager. Choose a mutual fund scheme which is consistently giving positive returns even if they are low.

Suppose one scheme is giving 8% returns every year, while the other scheme is giving 25% returns in one year and -5% returns in the next year, that is, the returns are not consistent. In this case, the first scheme is better than the second because in the long term the returns of this scheme will be better than the first. Apart from this, attention should also be paid to asset allocation, stocks included in the scheme etc.

To check the returns and other ratios of a mutual fund scheme, you can take the help of the online brokers mentioned below. If you have not invested in mutual funds yet and want to start your investment journey, then through these you can easily invest in mutual funds sitting at home.

ET Money

groww

Zerodha Coin

cams

Conclusion

Investing in mutual funds can be your best decision in the journey of achieving your financial goals. But wherever or in any asset, it is important to think carefully about the risks involved, returns and your objective before investing. The points mentioned above will help you in choosing a good mutual fund. However, there is no guarantee that even after following all the tips, your investment will give only good returns. The returns of investment in mutual funds largely depend on market fluctuations and the efficiency of the fund manager. That is why it is important to adopt long term thinking and keep reviewing your investments from time to time.

IIFRA Indian Institute of Financial Research & Analysis

IIFRA is India’s top stock market training institute, renowned for its integrity and innovation. They offer expert-led courses covering everything from basics to advanced strategies. With small classes and personalized attention, students get tailored guidance to achieve their goals. IIFRA fosters a vibrant community and provides networking opportunities for students to connect with industry professionals. It’s not just education; it’s a pathway to success in finance.

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Are you also new to the share market and thinking of investing? Being a new investor, it becomes very important for you to know how much profit and to what extent you can lose in the share market. Before making any kind of investment, we should know about its advantages and disadvantages. This is very important so that one can take a better investment decision and avail high returns with minimum loss. Through this article, we have tried to tell you the advantages and disadvantages of share market, but before knowing it, let us take a look at what is share market?

What is Share Market?

Share market is a market where shares of different companies are bought and sold. Share means a part of the company which can be purchased by paying some price. Here different buyers and sellers trade and invest in these shares with the aim of earning profits. If share market is a market then stock exchange is the place where this market is organized and brokers are the shopkeepers who work to connect traders/investors and the exchange. Earlier the shares market used to work in physical state where all the shares were issued in the form of certificates but now they are stored in digital form in demat account.

Benefits of Share Market

High Return: Share market is such a medium which has the ability to give you very high returns in a very short time. It is almost impossible to expect such returns in any other investment sector. If stocks are selected thoughtfully and through proper analysis, there is no better way to earn wealth than this.

You can make money in the market through two things, either trading or investing. In investing, this work is done for a long period and for that one must have the ability to tolerate the ups and downs of the market. On the other hand, if one learns trading well and becomes skilled in it, then making big money in a very short time is not a big deal. It doesn’t matter.

Portfolio Diversification: Diversification means not making all your investments in one place but in different assets and sectors, so that even if a situation like recession and epidemic comes tomorrow, some money will remain in such a place which will not be affected by the ups and downs of the market. Can also give an average return and which can be useful when needed.

If you are young and can take risk, then keep maximum part of your portfolio in the stock market. There is risk in this, but if even one of the companies you invest in performs well, then that one stock is enough to make you wealthy.

Owning a part of Company: Generally, investment in big companies is done by big corporates and financial firms which is in crores and billions, but share market is the only means which allows us to own a share in a company even in small amount. Gives the ability to give. Share means a part of the company and even if you buy just one share, you are still a shareholder in the company.

Investment in very less Amount: If we talk about investment in any asset, a minimum price is fixed for investment everywhere. Share market is the only place where you can start investing even with a very small amount. Shares of almost every price are traded in the share market which can range from 50 paise to lakhs. In this way, investors can start investing by purchasing company shares even with a small amount.

Liquidity in investment: Liquidity means how easily you can buy and sell any share. The more shares a company has in the stock exchange and the more people trade them, the higher the liquidity. During the trading time, crores of shares are bought and sold every second, therefore, except in a few situations, one can easily buy and sell shares during the trading time.

Dividend and Bonus: From time to time, companies keep rewarding their shareholders in the form of dividends and bonus shares in return for their investment. In both these ways, the company shares its profit share with the shareholders, which is a good source of passive income.

Protection from Inflation: The stock market can provide protection from inflation because long-term returns on stocks have historically been higher than the rate of inflation. When the price of products and services increases, the value of money decreases, which reduces people’s spending power.

It is important to note that the stock market can be volatile in the short term, and there is no guarantee that stocks will always deliver positive returns. A well-diversified portfolio that includes a mix of stocks, bonds and cash can help control potential risk and balance stock market returns while protecting investors from inflation.

Disadvantages of Share Market

High Volatility: High volatility in the share market is a condition when the prices of shares change rapidly with big fluctuations. This could be due to a number of factors including economic conditions, political events and a sense of fear among investors. High volatility can make it difficult for investors to take good trading decisions and further increases the risk in the market. It is important for investors to keep a close eye on market conditions and consult a financial advisor before taking any investment decision.

Market Crash: Share market crash means a sudden huge fall in the prices of stocks listed in the market. This usually happens with high volatility and panic selling. Market crashes can be caused by many factors including economic decline, political crisis, natural disaster, sudden change in market sentiment and war. The decline in stock prices could last for several months or years, with serious consequences for investors and the economy.

High Brokerage: Brokerage in the stock market refers to the fees charged by brokerage firms for executing trades on behalf of their clients. These fees may vary depending on the firm and the trade being made. In some cases, the fees can be quite high, making it difficult for some investors and traders to make profits.

However, it is important to remember that brokerage firms provide valuable services, such as research and financial advice, that can help investors make better decisions. Additionally, many online brokers now offer commission-free trading, making it affordable for investors to trade and invest in stocks.

Lack of Control: There are many factors in the stock market that can affect its performance and it is difficult for investors to control them. Some of the factors affecting the stock market include economic conditions, government policies and global events. Apart from this, investors’ attitude towards the market can also play an important role in determining stock prices.

One of the main reasons for the lack of control in the stock market is that it is a decentralized market, in which there are many different participants and there is no single entity that can control the market. Additionally, the stock market is complex and is constantly influenced by related economic, political and social factors.

Scams and Frauds: Cases of scams and frauds often come to light in the share market, in which small investors lose their hard-earned money. Some common types of stock market scams include pump-and-dump schemes, insider trading, and Ponzi schemes. In a pump-and-dump scheme, fraudsters artificially inflate the price of a stock by spreading false information about the company. Then they “dump” their shares and sell them at a higher price, causing huge losses to investors who bought the stock at a higher price.

Insider trading occurs when a person uses private information to trade in shares. This is illegal and considered fraud. Ponzi scheme is a type of investment fraud where investors are duped by promising high returns in a short time. It is very important for investors to be aware of these scams and analyze the market and stock before investing.

Complexity: The stock market can be complex due to many reasons. One of these reasons is the huge number of shares and other assets listed for investment. With so many options to choose from, it can be difficult for investors to know which stocks to buy or sell and when to do so. Apart from this, the stock market is affected by economic, political and many other global factors, due to which it can be difficult to predict what will happen next.

Another complex part of the stock market is derivatives i.e. options and futures. Derivatives can be risky, especially for investors who do not fully understand them and trade them just to make a quick buck. Additionally, the stock market involves a lot of technical analysis and complex mathematical models, which may be difficult for some investors to understand.

Short Term Focus: Some investors invest in the share market with short term focus instead of long term investing. This short-term focus can be motivated by many things, such as the desire to get more returns in less time, the influence of media and social media, etc. This short-term focus can be harmful because investors take emotional decisions due to FOMO instead of paying attention to the actual fundamentals, financial conditions and future growth prospects of a company. In this way, decisions taken in haste and without thinking can lead to loss in investment.

Conclusion

In the end, I would like to say that like any investment instrument, the share market is also not free from risk, but by taking investment decisions wisely and after analysis, these risks can be kept under control and high returns can be availed. Therefore, before taking any kind of investment decision, do the analysis as per your understanding and invest your money in any stock only after knowing everything.

IIFRA Indian Institute of Financial Research & Analysis

IIFRA is India’s top stock market training institute, renowned for its integrity and innovation. They offer expert-led courses covering everything from basics to advanced strategies. With small classes and personalized attention, students get tailored guidance to achieve their goals. IIFRA fosters a vibrant community and provides networking opportunities for students to connect with industry professionals. It’s not just education; it’s a pathway to success in finance.

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Like any investment instrument, share market is also not free from risk and loss. With the desire to earn quick money, crores of people trade and invest in this share market every day, but instead of earning more money, many times they lose their hard-earned money overnight. The market is full of such examples of losses. There is no guaranteed way to prevent loss in the stock market, nor can it be completely controlled, yet there are some strategies and methods that can help you reduce your losses. What are those methods? Let us know this in today’s article “Tips to avoid losses in share market”. But before that let us know what are the reasons for loss or damage?

Causes of loss in share market

Economic Factors: Many factors including inflation, rising interest rates and weak customer sentiment can have an impact on the stock market. For example, if interest rates on other investment instruments rise, this may lead to a decline in stock prices as investors may shift to other investment options that offer safer returns.

Company Performance: Investors in the share market invest indirectly in a company in the form of stocks. The performance of a company can directly affect its share price. Poor financial results, disappointing earnings reports, or negative news about a company can cause its stock price to decline.

Geopolitical Events: Political instability, war and other geopolitical events can also affect the share market. These events can create uncertainty that causes investors to sell their stocks. In panic, other investors also sell their shares rapidly, due to which the share prices fall rapidly.

Market Sentiment: The share market is largely influenced by the sentiments of investors. If investors are confident about the future, they may be more likely to invest in stocks, causing prices to rise. Conversely, if investors are pessimistic, they may be more likely to sell shares, causing prices to decline.

Natural Disasters: Natural disasters like storm, earthquake and flood can also affect the stock market. These events can disrupt the operations of companies and cause them to lose profits, which can lead to a decline in stock prices.

Tips to avoid loss in share market

Portfolio Diversification: Portfolio diversification means dividing your capital among different companies, sectors and classes, such as stocks, bonds and real estate, instead of investing all your capital in stocks or assets. In this way, even if one sector or company does not perform well, the loss is reduced to a great extent due to the money being invested in different places. Therefore, never invest all your money in one stock or sector. Take advice from a good financial advisor and diversify your portfolio.

Long Term Investment – The share market is unstable in short time period, which happens due to the news and events etc. going on in the market. But if seen, historically the market has given positive returns in the long term. Therefore, the investor should remain invested in the market for the long term without worrying about the fluctuations of the market in the short term and avail good returns.

Own Research: Before investing in the share market, do thorough research on the company’s financials, management, market competition and growth prospects. Make sure you understand the risks involved and are investing keeping your investment objective in mind. Never invest based on stock market tips and rumours. This will help you in taking a good investment decision and you will avoid investing in high risk companies.

Avoid market timing – Don’t Time the Market: It is very difficult to predict future prices from short-term movements of the stock market, so avoid trying to time the market. Instead, keep buying companies with good fundamentals at fair prices and focus on holding them for the long term.

Make a plan – Stick to a Plan: Make a clear investment plan and stick to it. Keep checking your portfolio regularly and make adjustments as necessary, but avoid taking emotional decisions based on short-term market movements.

Set a stop-loss order: A stop-loss order is an order to sell a stock in which you set a limit price. If the price of that stock falls below that certain limit then the system automatically sells that stock. Setting a stop-loss order limits your losses to a great extent.

Long Term Investment – Most people come to the share market with the hope that they will double, triple their money in a very short time, but this is a wrong thinking. Give time to the market and instead of trying to make quick profits, focus on investing for the long term. Historically, the stock market has delivered positive returns over the long term, so by holding your investments for the long term, you may be able to ride out temporary fluctuations.

Take professional advice: If you do not have much knowledge about investing and researching in the share market and are taking this step only based on hearsay, then you need to think again. In such a case, you should take the help of a professional financial advisor who can help guide you and help you take a good decision.

Conclusion

There is no doubt that the share market has the ability to give very good returns in a very short time. But this is possible only if investment is made thoughtfully and wisely. Many people come into this market with the dream of becoming rich overnight and end up losing whatever they have. It is not possible to completely avoid losses in this market, however, by keeping the above mentioned points in mind, we can control our losses to a great extent.

IIFRA Indian Institute of Financial Research & Analysis

IIFRA is India’s top stock market training institute, renowned for its integrity and innovation. They offer expert-led courses covering everything from basics to advanced strategies. With small classes and personalized attention, students get tailored guidance to achieve their goals. IIFRA fosters a vibrant community and provides networking opportunities for students to connect with industry professionals. It’s not just education; it’s a pathway to success in finance.

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Through IPO, a company raises money from common people for its work. IPO provides a golden opportunity for the common people to earn a good return in a short time from the company as well. Before investing in any IPO, it is important to research the company thoroughly and take the investment decision only after careful consideration. What things should be kept in mind while investing in any IPO, we will know today through this blog “IPO Investment tips”.

What is IPO?

IPO means Initial Public Offering. It is a process through which a private company gets listed on the stock exchange for the first time and offers its shares to the public. In an IPO, the company issues new shares to raise equity or funds or while existing shareholders can also sell their shares. When shares are listed on the stock exchange they can be bought and sold by the public. IPOs are often used by companies as a way to raise money for growth or expansion plans.

IPO investment tips

Investing in an IPO has the potential to yield good returns, but it also involves risk. The tips given below will help you in taking a good investment decision and choosing a better IPO.

Understanding the risks: An important part of fundamental analysis is to understand the risks related to the sector in which the company is working. In such analysis, we keep in mind factors like regulations, competition, market expansion which may affect the functioning of the company. Apart from this, it is also good to gather information about the steps being followed in the IPO process and the insider trading taking place in it. You can use this site to analyze the fundamentals of any company.

Gathering information about IPO managers and underwriters – Review the underwriters and lead managers: When any company is about to launch its IPO, it appoints underwriters and managers for its processing and supervision, whose work is for the company. One has to evaluate the equity and keep a track record of the entire IPO process. Experienced and knowledgeable managers help in launching the IPO process without any hassle.

Research on the company’s strengths – Consider the company’s competitive advantage: Compare the company with other companies in the same sector. Notice these points to find out what are the qualities of the IPO company that gives it an edge over other companies in the sector. These attributes may include technology, property, strong presence, brand etc. Such qualities help the company to move ahead and remain sustainable in this era full of competition.

Keep the market sentiment in mind – Monitor the market sentiment: Pay special attention to the market conditions and investor sentiment during the IPO. If the market is negative then even if a good company has an IPO, it may not perform well. Positive market sentiment increases the chances of IPO being successful manifold.

Consult with financial advisors: If you do not have complete knowledge about IPO or stock market, then take the advice of a financial advisor to take a good investment decision. He will guide you based on his experience and knowledge. Will help to do.

Keep volatility in mind – Be prepared for volatility: Keep in mind that the IPO can be volatile in the initial days after its listing. Due to buying and selling of shares in large quantities after and during the IPO, their prices rise and fall rapidly. The investor should either book short term profits keeping in mind his investment goal or remain invested according to the long term horizon.

Conclusion

After this, remember that investment in IPO comes with a lot of risks along with short term benefits. An investor should invest in an IPO only after thinking carefully and taking the advice of a financial advisor.

IIFRA Indian Institute of Financial Research & Analysis

IIFRA is India’s top stock market training institute, renowned for its integrity and innovation. They offer expert-led courses covering everything from basics to advanced strategies. With small classes and personalized attention, students get tailored guidance to achieve their goals. IIFRA fosters a vibrant community and provides networking opportunities for students to connect with industry professionals. It’s not just education; it’s a pathway to success in finance.

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In today’s time, mutual fund is one of the best means of investment. It is capable of giving you a good return which helps you in achieving your financial goals even with small amount of investment. But here it is also important to note that like other means of investment, mutual funds are also not exempt from tax, and if you are investing without knowing about the tax imposed on mutual funds, then you are not a conscious investor. Do not fall in the category of. Taxes on mutual fund investments can reduce the value of your investment, but if you invest wisely, you can also save on tax liability. How much tax is levied on Mutual Funds? Today we will know about at what rate it occurs and under what circumstances.

Factors determining tax on mutual funds

We get two types of income from mutual funds, capital gains and dividends and both of them come under the tax bracket. The percentage of tax rate depends on many factors like the type of mutual fund scheme in which the investment is made, the holding period, which tax bracket the investor’s income falls in, etc. If we want to understand the tax levied on mutual funds completely, then let us first know about the factors or facts on which the tax calculation depends. These factors are:

Dividend: The securities or assets in which mutual funds invest usually distribute a portion of the profits to investors. This profit share is called dividend. Dividends do a good job of providing the investor a source of regular income as well as partial income.

Capital Gains: The increase in the value of an investment as its holding period increases is called capital gains. When an investor sells his mutual fund unit, the tax charged on the profit made from it is called capital gains tax.

Types of fund: Mainly two types of securities are invested in mutual funds. Equity and Debt. In equity, shares and assets related to private sector and stock market are invested which have higher risk and higher returns. Whereas debt mutual funds invest in government securities, bonds and fixed income securities which offer low risk and low returns. Apart from this, there are many other types of fund schemes such as hybrid and tax saving schemes. The rates and conditions of all these taxes are different.

Holding time – Holding period: The tax charged on any investment also depends on its holding period i.e. for how long it has been invested in a fund.

Taxes levied on Mutual Funds

The tax imposed on mutual funds can be divided into mainly 5 parts.

Capital gains tax

Capital gains tax depends on the time period of mutual fund investment. This tax is calculated on whatever return you get on your investment. According to the period of holding mutual fund, it is divided into two parts. Short term capital gain – short term capital gain and long term capital gain – long term capital gain. It is also important to keep in mind that capital gains tax is applicable only when mutual fund units are sold/redemption is taken. If you have held your investment then you will not have to pay any tax no matter how much profit you make. For example, if you invested Rs 1000 in any of your funds and after one year you took redemption, its value was Rs 1100. In this case, you will have to pay capital gains tax only on the capital gain i.e. only Rs 100. This tax is applicable differently in different types of funds, which is explained below.

Equity Mutual Fund – Equity-oriented mutual: These funds invest at least 65% of their portfolio in equity assets. If you hold the units of these schemes for less than one year, then the profit earned will fall in the category of short term capital gain, which is taxed at the rate of 10%. On the other hand, investment profits of more than 1 year come under the category of long term capital, on which tax rate of 15% is applicable. It is important to note here that if the amount of capital gain is less than Rs 1 lakh then it is completely free from tax.

Debt Mutual Fund – Debt-oriented mutual funds: These funds mainly invest in debt instruments like government securities, fixed income schemes and bonds etc. If you hold the investment of these funds for less than 3 years or 36 months, then it comes under the category of short term capital gain which is taxable as per your income tax slab. If the fund is held for more than 3 years then it will fall in the category of long term capital gain on which *Indexation – After indexation, 20% tax rate is applicable.

Hybrid mutual funds – Hybrid mutual funds: These funds invest in a mix of debt and equity securities. The tax applicable on these depends on the allocation of equity and debt and the holding period.

Different long term and short term taxes are levied on different funds as per the table given below:

Dividend income tax

Before April 1, 2020, whatever dividend was declared by the fund house, Dividend Distribution Tax (DDT) was paid before distributing it to the investors, hence investors did not have to pay any tax on mutual fund dividend income. But after the Union Budget of 2020, this rule was changed and all the dividends received by investors started being included in the tax net under “income from other”. Apart from this, if the dividend paid by the fund house crosses the limit of Rs 5000 in a financial year, then the AMC has to deduct flat 10% TDS on it. However, you can claim this TDS when you file tax returns.
ELSS Schemes

ELSS means Equity Linked Saving scheme. This scheme is mainly designed for the purpose of tax saving, on which profits up to Rs 150,000 can be availed of tax rebate under section 80c.

Tax on SIP

SIP is a disciplined and periodic way of investing in mutual funds in which small amounts can be invested over a fixed period, such as one month, three or six months. Every time you invest through SIP, some units are deposited in your portfolio according to the investment amount. The investment made in SIP and the redemption taken are calculated on first in first out basis.

Based on this concept, tax is also applicable on SIP investment. That is, for equity investment, all the units which are in your portfolio for less than one year will come under short term and all the units which have been held for more than one year will come under the purview of long term capital gain. Similarly, for debt funds, units of less than 3 years come under short term capital gain and units of more than 3 years come under long term capital gain. For example, you have invested in a scheme for 2 years. At the time of redemption, the units which are under 1 year (investment made within 12 months) will be short term and the units which are after 1 year will be in the category of long term capital gains (investment after 12 months). However, if the total capital gain amount is less than Rs 1 lakh then you will not have to pay any tax on it. It is important to note here that short term capital gain is applicable only on investment units purchased from the second month onwards. While paying capital gains tax, you also have to pay the cess and surcharge applicable on it.

Tax on SWP

It can be said that in SWP only money is transferred from one scheme to another but this process is much more than that. Under SWP, the money is first redeemed from the scheme from which the units are to be transferred, which is considered as selling the units of the fund. Similarly, in the scheme in which money is transferred, it is considered as purchasing the unit. Now this entire process involves buying and selling of mutual fund units, hence it comes under the tax net like normal situation. Whereas in SIP you can invest a fixed amount in a mutual fund at a fixed time, similarly in SWP you can withdraw a fixed amount at a fixed time. In this, the investor has the freedom to choose whether he wants to withdraw a fixed amount or only a part of the capital gains. If investment is withdrawn from equity fund before 1 year then it comes in the category of short term capital gain and if it is more than 1 year then it comes in the category of long term capital gain. The rate of short term capital gain is 15% while long term capital gain is taxed at 10% without indexation. In case of debt scheme, if redemption is taken before 36 months, then the profit is added to your total income and tax is applicable as per the prevailing income tax slab. After indexation, 20% tax is applicable on capital gains after 36 months.

State Transaction Tax

STT is collected by the Government of India, which was first introduced in the Union Budget of 2004 and implemented on 1 October 2004. STT or State Transaction Tax is different from the tax on capital gains and dividends. The Government of India collects this tax when you sell your mutual fund units from equity or hybrid funds. Its fund is separate from its mutual fund and this tax is not applicable on debt mutual funds. Its rates on equity related mutual funds are shown in the table below.

Indexation benefit

If we are talking about tax then it becomes necessary to clear the indexation benefit also. Through indexation benefit, capital gains on mutual funds are compared with inflation, thereby reducing the overall tax liability. Whenever an investor sells his mutual fund units, the capital gain is taxable. Under indexation benefit, an investor can adjust his investment profits as per the ongoing inflation rate. Such adjustments reveal the actual value of capital gains on investments. That is, the price which is obtained by subtracting the ongoing inflation rate. To calculate this price, a standard is used which is called Cost of Inflation Index (CII). This standard is revised by the Finance Ministry every year at the time of budget and it can be easily seen on the Income Tax website.

Indexation benefit is applicable only in case of long term capital gains on debt mutual funds. For example, an investor bought 5000 units of a debt mutual fund in 2012-13 at Rs 18 and sold it at Rs 27 in 2018-19. Now this time is more than 36 months, so the profit made here will come in the category of long term capital gain.

Total profit made in this: 5000 (27-18) = Rs 45000

Net value after adjusting for inflation: (280/200)*18 =25.2

Here the Cost Inflation Index number is 280 for 2012-13 and 200 for 2018-19 and 18 is the price at which the units were purchased.

Thus, the long term capital gain on this after indexation will be:
5000 x (INR 27- INR 25.2) = INR 9000

Now whatever tax the investor has to pay will have to be paid on the capital gain of Rs 9000 and not on the capital gain of Rs 45000.

Conclusion

The government raises money for the economy and national interest of any country only through taxes. For a common citizen who files his ITR every year, it becomes necessary to declare the income earned from mutual funds. According to your convenience and tax planning, you can keep it in the category of long term or short term tax. Even if your income does not come under the ambit of tax, still declare it, whatever refund is made, you can claim it later. There are many such provisions in Income Tax, through which you can avail tax rebate on your investment profits under different sections. If you use the right information and professional advice, then these small savings will give rise to big savings in the future.

IIFRA Indian Institute of Financial Research & Analysis

IIFRA is India’s top stock market training institute, renowned for its integrity and innovation. They offer expert-led courses covering everything from basics to advanced strategies. With small classes and personalized attention, students get tailored guidance to achieve their goals. IIFRA fosters a vibrant community and provides networking opportunities for students to connect with industry professionals. It’s not just education; it’s a pathway to success in finance.

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