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Mihir Tanna  |1042 Answers  |Ask -

Tax Expert - Answered on May 10, 2024

Mihir Ashok Tanna, who works with a well-known chartered accountancy firm in Mumbai, has more than 15 years of experience in direct taxation.
He handles various kinds of matters related to direct tax such as PAN/ TAN application; compliance including ITR, TDS return filing; issuance/ filing of statutory forms like Form 15CB, Form 61A, etc; application u/s 10(46); application for condonation of delay; application for lower/ nil TDS certificate; transfer pricing and study report; advisory/ opinion on direct tax matters; handling various income-tax notices; compounding application on show cause for TDS default; verification of books for TDS/ TCS/ equalisation levy compliance; application for pending income-tax demand and refund; charitable trust taxation and compliance; income-tax scrutiny and CIT(A) for all types of taxpayers including individuals, firms, LLPs, corporates, trusts, non-resident individuals and companies.
He regularly represents clients before the income tax authorities including the commissioner of income tax (appeal).... more
Asked by Anonymous - May 01, 2024Hindi
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Sir can anyone please help me understand tax harvesting procedure in MF (SIP) , If I invested ?300000 lumpsum in A-MF which gave 12% returns in 1year total value would be 336000 if I sell this corpus after 366th day my investment is tax free(LTCG- MY RETURNS

Ans: It depends on type of scheme (equity or debt based scheme).

Short Term or Long Term depends on period of holding. Debt based scheme are always short term and taxable at slab rate. Equity based scheme are long term if it is sold after holding for 12 month or more. Long term capital gain on equity scheme is taxable at NIL rate upto 1 lacs of gain.
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |8189 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 06, 2024

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Sir can anyone please help me understand tax harvesting procedure in MF (SIP) , If I invested ?300000 lumpsum in A-MF which gave 12% returns in 1year total value would be 336000 if I sell this corpus after 366th day my investment is tax free(LTCG- MY RETURNS
Ans: Tax harvesting, especially in the context of mutual funds (MFs) and SIPs, involves strategically selling investments to realize capital losses or gains for tax purposes. Here's a simplified explanation:

Understanding LTCG and Tax Implications:
Long-Term Capital Gains (LTCG) tax is applicable on profits earned from selling MF units after holding them for more than one year.
As per current tax regulations, LTCG tax on equity MFs is applicable if gains exceed Rs. 1 lakh in a financial year, and the tax rate is 10% without indexation.
Tax Harvesting Procedure:
Suppose you invested Rs. 3,00,000 lump sum in a mutual fund scheme (A-MF) and earned a 12% return over one year, resulting in a total corpus of Rs. 3,36,000.
If you sell this corpus after holding it for more than 1 year (366th day or later), the LTCG would be tax-free up to Rs. 1 lakh.
Any LTCG exceeding Rs. 1 lakh would be subject to a 10% tax rate without indexation.
To minimize tax liability, you can strategically sell a portion of your investment before the end of the financial year to realize gains below the Rs. 1 lakh threshold.
By doing so, you can utilize the tax-free limit effectively and reduce the tax burden on your overall gains.
Example Illustration:
Let's say your total LTCG after holding the investment for more than a year amounts to Rs. 40,000.
If you sell a portion of your investment to realize gains of Rs. 60,000 before the end of the financial year, your total LTCG would still remain Rs. 40,000, within the tax-free limit of Rs. 1 lakh.
This strategy helps you optimize your tax liability by utilizing the tax-free threshold efficiently.
Consultation and Expert Advice:
Tax harvesting strategies can vary based on individual financial circumstances and tax regulations.
It's advisable to consult with a tax advisor or certified financial planner to assess your specific situation and implement tax-efficient investment strategies effectively.
They can provide personalized guidance tailored to your financial goals, risk tolerance, and tax-saving requirements.
In summary, tax harvesting in MFs and SIPs involves strategically realizing gains or losses to optimize tax liabilities. By leveraging the tax-free threshold and implementing effective strategies, you can minimize tax burdens and enhance overall returns on your investments.

..Read more

Ramalingam

Ramalingam Kalirajan  |8189 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 24, 2024

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I am 38 years old and invested in MF through SIP. My monthly SIP are Parag Parikh flexi Cap- Rs. 5000 since 4 years, Mirae asset Large and Midcap- Rs. 5000 since 4 years, Quant Small Cap- Rs. 3000 since 1 year, Nippon India Small Cap - Rs. 2000, Quant Mid Cap- Rs. 5000 since 6 months, Axis Bluechip - Rs. 5000 since 4 years. Further I have started STP in Motilal Oswal Large and Midcap, Motilal Oswal Midcap and JM financial Flexi Cap. STP amount is Rs. 500000 Lakh in each Mutual fund for 2 years then hold for minimum period of 20 years. How much corpus I may get at the end of 20 years. Any modification is required, please suggest.
Ans: You’ve built a solid investment foundation with systematic investment plans (SIPs) and systematic transfer plans (STPs). At 38 years old, your portfolio appears well-diversified across flexi-cap, mid-cap, small-cap, and large-cap funds. This strategy can balance growth potential and manage volatility over time. Let's analyse your portfolio and discuss potential modifications.

Current SIP Investments
You have SIPs in the following categories:

Flexi-Cap Fund: Rs 5000/month for 4 years
Large and Mid-Cap Fund: Rs 5000/month for 4 years
Small-Cap Fund: Rs 3000/month for 1 year and Rs 2000/month for 6 months
Mid-Cap Fund: Rs 5000/month for 6 months
Blue-Chip Fund: Rs 5000/month for 4 years
Your SIPs seem to be a mix of long-term, high-growth, and stable funds. Flexi-cap and blue-chip funds provide stability, while small-cap and mid-cap funds offer potential for higher growth.

Systematic Transfer Plans (STP)
You’ve allocated Rs 5 lakhs each into three funds through STPs, with plans to hold these investments for 20 years. This approach helps reduce market timing risk by gradually transferring lump-sum amounts into the market, which can be very beneficial in volatile conditions.

The following funds are part of your STP strategy:

Large and Mid-Cap Fund
Mid-Cap Fund
Flexi-Cap Fund
Holding these for 20 years should yield solid returns, given the equity markets' tendency to grow over longer horizons.

Estimating Corpus Over 20 Years
Projecting the exact corpus after 20 years can depend on many factors, such as market conditions and fund performance. However, based on historical average returns of 12% to 15% for equity mutual funds over long periods, you can expect a considerable corpus from both your SIPs and STPs.

The growth in your portfolio can be significant, particularly with regular contributions through SIPs and the compounding effect over time. The final value could comfortably exceed several crores, provided you stay invested through market cycles. This would give you a strong financial foundation for future needs, such as retirement or family obligations.

Portfolio Assessment
Let's assess your portfolio from various angles:

1. Diversification
You have diversified across multiple categories: flexi-cap, small-cap, mid-cap, and large-cap funds. This is crucial to reduce risks associated with any one segment underperforming. However, you have invested in two small-cap funds, which can increase portfolio volatility. You may consider reducing exposure to one small-cap fund to avoid overconcentration in this high-risk category.

2. Investment Horizon
Your long-term investment horizon of 20 years works in your favour. Equities tend to outperform other asset classes over such periods, despite short-term fluctuations. Your current strategy aligns well with long-term wealth creation goals.

3. STP Strategy
STPs are a great way to mitigate market risk. However, it’s essential to review the performance of your STP funds regularly to ensure they meet your expectations. While you’ve chosen good categories, some active monitoring is needed.

4. Mid-Cap and Small-Cap Exposure
While mid-cap and small-cap funds provide higher growth potential, they are also more volatile. Having both SIPs and STPs in mid-cap and small-cap categories is an aggressive approach. It’s important to balance this with more stable funds such as large-cap or flexi-cap funds.

5. Risk and Volatility
Given your age, it’s reasonable to have higher equity exposure. However, it’s important to keep an eye on the overall risk profile of your portfolio. If markets become highly volatile, your small-cap and mid-cap funds may experience more significant corrections. Having more exposure to large-cap and flexi-cap funds could help smoothen the volatility.

Suggestions for Modifications
After analysing your portfolio, here are some potential modifications:

Reduce Small-Cap Exposure: You currently have two small-cap funds. Consider reducing one of them to manage risk better. Small-caps are high-risk, high-reward, and too much exposure can increase your portfolio’s volatility. Redirect those funds to large-cap or multi-cap categories.

Increase Allocation to Large-Cap: You may benefit from increasing your allocation to large-cap funds. Large-cap funds are more stable and offer consistent growth. This will help balance out the volatility from your small and mid-cap funds.

Consolidate Mid-Cap Funds: Since you already have significant exposure to mid-cap funds, consolidating into one mid-cap fund might simplify your portfolio and make it easier to manage. Keeping too many similar funds doesn’t necessarily increase diversification, but it does increase complexity.

Review the STP Funds: Regularly review your STP investments and their performance. Ensure that the large-cap, mid-cap, and flexi-cap funds you’ve chosen continue to perform well over the long term. If necessary, switch to better-performing options within the same categories.

Benefits of Actively Managed Funds over Index Funds
You haven’t mentioned index funds in your portfolio, which is a good thing. Actively managed funds often outperform index funds over long-term periods, particularly in the Indian market where active managers can exploit market inefficiencies. Index funds lack flexibility and might not deliver optimal returns, especially during market downturns. By staying with actively managed funds, you are giving your portfolio the chance to beat the broader market.

Why Regular Funds Through a Certified Financial Planner Are Better
You have not indicated whether you are using direct funds or regular funds. If you are using direct funds, you might want to reconsider. While direct funds may seem appealing due to lower expense ratios, they lack professional guidance. Investing through a Certified Financial Planner (CFP) who can actively manage your portfolio adds more value. A CFP can help you with ongoing portfolio reviews, goal planning, and strategic modifications when needed. The cost of a regular plan is often worth the benefits of expert advice and regular monitoring.

Taxation Considerations
Mutual fund taxation has evolved, and it's important to keep the new rules in mind when planning long-term investments:

Long-Term Capital Gains (LTCG) on equity mutual funds are taxed at 12.5% for gains above Rs 1.25 lakh.
Short-Term Capital Gains (STCG) are taxed at 20%.
These taxes will impact your returns, so you should factor them into your long-term planning. Ensure that you don’t sell units unnecessarily before the 12-month holding period to avoid higher taxes.

For debt mutual funds, both LTCG and STCG are taxed as per your income tax slab. However, given your focus on equity funds, the primary concern will be equity taxation.

Final Insights
You have built a well-diversified portfolio that aligns with long-term growth and wealth creation. While your SIPs and STPs are on track, making a few tweaks can help optimise your returns and manage risk more effectively.

Consider reducing your small-cap exposure, increasing large-cap allocations, and consolidating your mid-cap investments. Regularly reviewing your STP funds will ensure they continue to perform as expected over your investment horizon.

Remember, investing through a Certified Financial Planner adds significant value over time by providing expert guidance and helping you stay on track with your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

..Read more

Latest Questions
Ramalingam

Ramalingam Kalirajan  |8189 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 04, 2025

Asked by Anonymous - Apr 03, 2025Hindi
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Dear Sir, I am a 55-year-old corporate executive retiring by 2029. My corpus is as follows - PF = 45,00,000. PPF = 3200,000. NPS = 35,00,000 (with a monthly investment of 30k). Property = 4 crores. Shares + MF = 32,00,000 (with monthly investment of around 60,000). LIC = 14,00,000 (maturing next year). FDs = 36,00,000. Apart from the above, there would be Gratuity (15 lac) and jewellery. My 2 children would be needing around 25 lac for their education spread over the next 4 years. Can I take early retirement.
Ans: Your financial position is strong. You have built a solid corpus across multiple asset classes. Below is a detailed assessment of your readiness for early retirement.

Assessing Your Financial Position
Retirement is in 2029, meaning you have five more years of income and investments.

Your total corpus is well-diversified across PF, PPF, NPS, MFs, shares, FDs, and property.

You have a healthy investment habit with a Rs 60,000 monthly SIP and Rs 30,000 into NPS.

LIC maturity next year will provide Rs 14 lakh, adding to liquidity.

Gratuity of Rs 15 lakh will come at retirement, increasing your cash reserves.

Jewellery is additional wealth but is not an income-generating asset.

Financial Needs & Future Goals
1. Children’s Education – Rs 25 Lakh Needed in 4 Years
You need Rs 25 lakh over four years for education expenses.

Your FDs (Rs 36 lakh) can help cover this without disturbing your investments.

Consider a laddering approach for FDs to match the education payment timeline.

2. Regular Income Post-Retirement
Your NPS corpus (Rs 35 lakh) will generate a pension post-retirement.

EPF (Rs 45 lakh) and PPF (Rs 32 lakh) provide lump-sum retirement funds.

MFs & Shares (Rs 32 lakh) with Rs 60K SIP will continue to grow.

You have a strong base for passive income but need an income plan.

3. Healthcare & Emergency Fund
At 55 years, medical expenses will rise over time.

Ensure you have adequate health insurance for post-retirement years.

Keep at least Rs 15-20 lakh in liquid FDs or debt funds for emergencies.

Assessing Early Retirement Feasibility
1. Corpus Growth Over the Next 5 Years
Your existing investments + SIPs + NPS contributions will grow further.

With proper asset allocation, your corpus can cross Rs 5-6 crore in five years.

2. Inflation & Lifestyle Maintenance
Your current lifestyle expenses should be estimated.

Factor in inflation (6-7% per year) to assess long-term sustainability.

3. Investment Strategy for Stability
Shift some equity to balanced funds for stability closer to retirement.

Keep a mix of growth & conservative investments for steady returns.

Avoid full withdrawal of NPS—use a mix of systematic withdrawal & pension.

Final Insights
You have a strong corpus and are on track for retirement.

Continuing work for five more years will provide financial security.

Asset allocation adjustments will ensure income stability post-retirement.

Plan for rising medical costs & inflation for a stress-free retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...Read more

Ramalingam

Ramalingam Kalirajan  |8189 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 04, 2025

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Dear Sir, I am 59 years old salaried person, doing SIP Axis midcap @5K, Axis ESG @5K, Parag Parikh Flexicap @25K, Nippon Multicap @7.5K Nippon Smallcap@5K, SBI Smallcap @4K and Canara Smallcap @3K per month from last four years. The SIP is to be continued for another five years. In context of the present market volatility, will you please review my portfolio? I am not risk averse. Goal is wealth creation.
Ans: Your investment strategy is well-structured. You have a strong focus on wealth creation, and your portfolio reflects that. Below is a detailed review with recommendations.

Assessing Your Existing Portfolio
You have a well-diversified equity portfolio with mid-cap, small-cap, flexi-cap, ESG, and multicap funds.

The majority of your investments are in aggressive-growth categories.

Your risk-taking ability is clear from the allocation to small and mid-cap funds.

You have been investing consistently for four years, which is a good approach.

Your SIPs are planned for another five years, giving your investments time to grow.

Strengths of Your Portfolio
Growth Potential: Small and mid-cap funds have higher return potential over the long term.

Diversification: Investing across categories helps balance risk and return.

Flexibility: The flexi-cap and multicap funds allow fund managers to switch between market caps.

Consistency: Regular SIPs reduce the impact of market volatility.

Key Areas for Improvement
1. High Exposure to Small & Mid-Cap Funds
Your portfolio has a strong tilt towards small and mid-cap funds.

These funds can be volatile, especially in uncertain markets.

A slight reallocation towards large-cap funds can add stability.

2. Sector-Specific Risk in ESG Fund
ESG funds are theme-based and depend on specific regulatory and global trends.

This can lead to underperformance if ESG sectors face downturns.

Consider reducing exposure to ESG or tracking its performance closely.

3. Overlapping Investment Strategies
Some of your funds may have similar stock holdings, leading to duplication.

Too many funds in the same category do not always mean better diversification.

A focused approach with fewer but well-selected funds may work better.

Recommended Portfolio Adjustments
1. Reduce Small-Cap Exposure
You already have multiple small-cap funds.

Retaining one strong performer and reducing others can improve risk management.

The freed-up capital can be shifted to large-cap or balanced funds.

2. Increase Large-Cap Allocation
Large-cap funds provide stability and steady growth.

A 15-20% allocation in a strong large-cap fund can improve balance.

This will ensure that your portfolio withstands short-term market fluctuations.

3. Monitor ESG Fund Performance
ESG funds have a unique investment strategy.

If the performance is inconsistent, switching to a flexi-cap or multicap fund may be better.

Managing Market Volatility
SIP Continuation: Continue your SIPs as planned to benefit from rupee cost averaging.

Rebalancing: Adjust allocations annually based on market conditions.

Profit Booking: Consider partial withdrawals in strong market phases.

Taxation Considerations
Equity Mutual Funds: LTCG above Rs 1.25 lakh is taxed at 12.5%. STCG is taxed at 20%.

Reallocation Impact: Switching funds may lead to taxable capital gains.

Tax-Efficient Withdrawals: Plan redemptions to minimize tax liability.

Final Insights
Your portfolio is well-structured for wealth creation.

Reducing small-cap exposure and adding large-cap stability can improve balance.

Regular monitoring and minor adjustments will keep your investments on track.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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