Sir, I have an equity MF whose SIP ran from 2012 to 2020 and redeemed The sale action incur LTCG with and without grandfathering. While NAV for each purchase is provided by the Fund House, wherefrom will I collect FMV of each purchase for the...

Sir, I have an equity MF whose SIP ran from 2012 to 2020 and redeemed The sale action incur LTCG with and without grandfathering. While NAV for each purchase is provided by the Fund House, wherefrom will I collect FMV of each purchase for the purpose of populating Sch112A?

Ans: Finding the Fair Market Value (FMV)
Capital Gain Statement:

If you have redeemed your mutual fund units already, the easiest way to get the FMV for each purchase is through the capital gain statement.

Downloading Capital Gain Statement
CAMS:

CAMS (Computer Age Management Services) is one of the Registrars and Transfer Agents (RTA) for mutual funds in India. You can download the capital gain statement from the CAMS website. This statement includes the FMV as on 31st January 2018 for all your mutual fund holdings.

Steps to Download:
Visit the CAMS website.
Go to the investor services section.
Request a capital gain statement by providing your email and PAN.
KFintech:

KFintech (formerly Karvy Fintech) is another RTA for mutual funds. Similar to CAMS, you can download the capital gain statement from their website.

Steps to Download:
Visit the KFintech website.
Navigate to the investor services section.
Request a capital gain statement by entering your email and PAN.
Contacting Your Mutual Fund Distributor (MFD)
If you have not redeemed your units so far, it's best to get in touch with your Mutual Fund Distributor (MFD). They can provide you with the FMV easily. MFDs have access to detailed transaction statements and can help you with the necessary information.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in

Ans: it is admirable that you are already thinking about how to optimise your tax liabilities. When we talk about the Rs 1.25 lakh LTCG (Long-Term Capital Gains) exemption limit, many investors overlook this excellent opportunity to reduce their tax burden. Your proactive approach is commendable.

Now, regarding your query about redeeming units that are more than one year old, and reinvesting in the same mutual funds category to avail the LTCG exemption, it’s important to assess this strategy from a 360-degree perspective. Here’s a detailed and structured analysis to help you make an informed decision.

Understanding Long-Term Capital Gains (LTCG) and the Rs 1.25 Lakh Exemption
Long-term capital gains (LTCG) from equity mutual funds held for over one year are taxed at 12.5% if they exceed Rs 1.25 lakh in a financial year.

The first Rs 1.25 lakh of gains from your equity funds is exempt from tax each year. Hence, if your gains have crossed this limit, it's a great strategy to utilise this exemption.

By redeeming units that are more than one year old, you can realise the gains tax-free within the Rs 1.25 lakh limit and reinvest in the same funds, maintaining your investment horizon.

This approach works because any additional LTCG beyond Rs 1.25 lakh is taxed at 12.5%. Therefore, realising gains up to the exempt limit each year will help minimise your overall tax outgo in the long term.

Redeeming and Reinvesting Strategy
You mentioned that your investments are meant for long-term goals, so you intend to reinvest immediately after redemption.

Reinvesting ensures that you remain invested in the market and do not miss out on future potential growth. However, this strategy needs careful timing, as there could be minor costs in the form of transaction fees or exit loads if applicable, depending on the mutual fund you hold.

One key thing to remember is that reinvestment resets the holding period for the new units. So, when you redeem again in the future, the one-year timeline for LTCG exemption will start afresh from the date of reinvestment.

Despite this, redeeming and reinvesting to utilise the Rs 1.25 lakh exemption each year is an efficient way to reduce tax liability while keeping your long-term goals on track.

Impact on Your Long-Term Investments
The good news is that redeeming and reinvesting units of more than one year old should not affect your overall investment growth in the long run, as long as you stay committed to reinvesting the redemption proceeds into the same category of mutual funds.

Equity markets have their ups and downs. By staying invested and reinvesting promptly, you will continue to benefit from the potential compounding effect over time.

This strategy will not change your exposure to equities or alter the risk profile of your portfolio if you reinvest in the same mutual fund category.

The only minor impact may be the potential short-term volatility on the day you redeem and reinvest, which is usually negligible for long-term investors.

One point to keep in mind is market fluctuations. If the market is up at the time of redemption and down when you reinvest, you may lose some gains. However, for a long-term investor like you, these short-term blips should not be a major concern.

Evaluating Reinvestment Costs
Before proceeding with this strategy, ensure there are no exit loads applicable on the funds you plan to redeem. Exit loads, if any, are usually levied on units held for less than one year, so since your units are older than a year, this may not apply.

Transaction fees may also be incurred while redeeming and reinvesting. Some mutual funds or platforms charge small fees for each transaction. Although minor, over time these fees could add up, so it's essential to factor this in.

There might be a marginal difference between the NAV at the time of redemption and reinvestment due to daily market fluctuations. However, this impact is usually very small, and over the long term, the difference balances out.

As long as these costs are minimal and do not exceed the potential tax savings from the Rs 1.25 lakh LTCG exemption, the strategy remains sound.

Alternative Considerations
If the funds you hold are actively managed funds, redeeming and reinvesting makes sense, especially because actively managed funds are designed to outperform the market over time.

In comparison, index funds or ETFs, which only aim to match market returns, might not offer the same potential upside. This means that if you're redeeming and reinvesting in actively managed funds, your long-term potential for growth remains high.

Also, direct mutual funds may seem like a better option due to lower expense ratios, but when you're using an MFD (Mutual Fund Distributor) with CFP (Certified Financial Planner) credentials, you benefit from professional guidance. This helps in managing not only returns but also asset allocation, portfolio rebalancing, and overall strategy, which justifies the slightly higher expense ratios.

Regular funds, though they come with a marginally higher cost than direct plans, are worth it because of the long-term hand-holding and personalised financial planning they offer. This is especially useful for managing complex investment portfolios over long horizons like yours.

Long-Term Goals and This Strategy
Given that your investments are for long-term goals, the overall impact of this redeeming-reinvesting exercise on your financial goals should be minimal. This is because your fundamental asset allocation to equities remains unchanged.

By periodically booking tax-free gains, you are not only optimising your tax outgo but also managing your portfolio efficiently. Over time, this will add up to significant savings, which can be reinvested to enhance your corpus further.

Since your investments are linked to long-term objectives, such as retirement or other major milestones, staying disciplined with this strategy will help ensure that your wealth grows without unnecessary tax burdens eating into your returns.

Risk of Missing Out on Market Movements
One of the few concerns with this strategy is the risk of missing out on favourable market movements while your funds are temporarily redeemed. However, this risk is mitigated if you reinvest the funds immediately.

Markets tend to move unpredictably in the short term, but over the long term, equity investments generally deliver strong returns. By sticking to the plan of reinvesting quickly, you're safeguarding your investments from being out of the market for too long.

Also, if there are significant downward market movements during the time of your redemption and reinvestment, you might even benefit by buying units at a lower NAV.

Final Insights
Using the Rs 1.25 lakh LTCG exemption each year is a smart move to optimise your tax efficiency while keeping your long-term investment goals intact.

As long as the costs of redeeming and reinvesting (exit loads, transaction fees) are minimal, this strategy can significantly enhance your tax savings without negatively impacting your overall portfolio.

Reinvesting promptly in the same mutual fund category ensures you don’t miss out on market movements, and the long-term impact on your financial goals should remain positive.

Keep in mind that the reinvestment resets the LTCG clock, so continue to monitor and redeem accordingly to make the most of this tax benefit each year.

Regular mutual funds, when invested through an MFD with CFP credentials, offer additional benefits in terms of financial guidance, which should not be overlooked when managing long-term goals.

Lastly, this strategy is not just about tax savings—it’s also about maintaining and growing your wealth in a tax-efficient manner, ensuring you reach your long-term goals without unnecessary tax erosion.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: You are doing a disciplined and smart job with your investments. You have a long-term horizon, a strong SIP commitment, and a clear goal in mind. That’s a big step many don’t take seriously. Let me now evaluate your approach from all angles. This will be a 360-degree review of your investment plan and future readiness.

Let us go step-by-step to understand if your approach is right and what the future looks like.

Your Current Financial Setup

You are 40 years old now.

You have a mutual fund corpus of Rs 13 lakh.

You invest Rs 30,500 monthly through SIP.

You invest in four small cap funds and one flexi cap fund.

You step up your SIP by 10% annually.

You have a PPF investment of Rs 12,500 monthly.

You contribute to EPF. Your basic salary is Rs 25,000.

You will receive Rs 50 lakh from LIC policies at age 60.

Your investment horizon is 22 years from now.

This is a solid plan and shows discipline. Now, let us evaluate it carefully with insights and suggestions.

Assessment of Mutual Fund Investments

You are investing heavily in small cap mutual funds.

Four out of five funds are from the small cap category.

Small caps give high returns, but they also carry high risk.

Over 22 years, this risk may work in your favour.

But the ride will be bumpy. There will be sharp ups and downs.

At times, you may see short-term losses. That is normal.

However, putting over 85% of SIP in small caps may be risky.

You need better diversification for stability.

Adding large cap and mid cap funds may balance the risk.

Your Flexi cap fund does help a bit, but it is still not enough.

A blend of market caps will give smoother long-term growth.

It is better to slowly bring down small cap exposure to 50%.

Increase exposure to diversified and mid-cap funds gradually.

Don’t exit small cap funds suddenly. Take a phased approach.

This change will make your portfolio strong and well-balanced.

Step-Up SIP Strategy – Strong and Effective

Increasing SIP by 10% annually is a smart idea.

This fights inflation and grows your wealth faster.

It uses your rising income to build a big corpus.

Many investors ignore step-up. You are doing it correctly.

Keep increasing the SIP without fail every year.

Even a break in step-up can delay your target.

Review your SIPs yearly and adjust as income rises.

This strategy will help you reach your target corpus faster.

Investment in PPF – A Safe Long-Term Cushion

PPF offers guaranteed, tax-free interest.

You are investing Rs 12,500 monthly in PPF.

Over 22 years, this will become a strong safe corpus.

It adds stability to your overall financial plan.

PPF is good for retirement since it is risk-free.

Keep continuing till maturity. Do not withdraw early.

Interest rate may vary, but long-term returns are good.

You also get tax exemption under Section 80C.

This risk-free asset will protect you from equity market shocks.

EPF – A Reliable Retirement Contributor

Your EPF is linked to your Rs 25,000 basic salary.

The employer also contributes monthly.

Over 22 years, this will grow into a big amount.

EPF offers fixed, tax-free returns with no market risk.

It is an excellent tool for retirement planning.

Avoid premature withdrawals from EPF.

You can withdraw after retirement for use as income.

This will be a strong pillar of your retirement security.

LIC Maturity at Age 60 – A Special Boost

You will receive Rs 50 lakh from LIC policies at age 60.

This will come at a perfect time near retirement.

You must check if these are traditional or ULIP plans.

Traditional plans offer low returns, mostly below inflation.

ULIPs carry market risk and high charges.

If these are investment-cum-insurance plans, surrendering is wise.

You can reinvest that surrender amount in mutual funds.

Use proper asset allocation while reinvesting.

For insurance needs, use only term insurance.

Reinvesting in mutual funds can make this Rs 50 lakh grow further.

Future Corpus at Age 62 – What to Expect

With SIPs, EPF, PPF and LIC money, your total savings will be huge.

Your mutual fund corpus will grow rapidly with step-up.

Your PPF and EPF will grow safely, year after year.

LIC amount will give a big boost just before retirement.

With 10% SIP step-up, your corpus can cross Rs 9 to 10 crore.

Exact figure depends on market returns, SIP discipline, and inflation.

But you are definitely on the right path to reach financial freedom.

You are preparing for retirement very well.

This kind of planning gives peace of mind and confidence.

Things You Are Doing Right – A Quick Look

Strong SIP discipline and long-term vision.

Investing in equity for long-term wealth creation.

Following step-up SIP approach.

Investing in PPF and EPF for safe returns.

Keeping investment horizon of 22 years.

Maintaining separate LIC maturity plans.

You are showing smart behaviour as an aggressive investor.

Key Improvements You Should Consider

Reduce small cap exposure to 50% slowly.

Add more mid-cap and flexi cap funds.

Avoid overlapping funds from same category.

Review performance of all funds every 6 months.

Check expense ratios and consistency of returns.

Track goal progress once a year with clear targets.

Make sure your portfolio has good asset allocation.

Don’t hold funds only based on past returns.

Always go through a Certified Financial Planner for changes.

This will make your portfolio more stable and return-oriented.

Important Taxation Insight

Long-Term Capital Gains above Rs 1.25 lakh are taxed at 12.5%.

Short-Term Capital Gains are taxed at 20%.

Plan redemptions smartly to reduce tax.

Use staggered withdrawals near retirement.

Redeem equity funds over time, not all at once.

PPF and EPF are tax-free. LIC maturity is also tax-free.

But for mutual funds, plan redemptions with tax efficiency.

This will help you protect your wealth from tax erosion.

Important Notes on Fund Types and Investments

Do not use direct mutual funds if you are not an expert.

Direct funds need self-review and research, always.

There is no handholding or guidance with direct funds.

If you miss fund underperformance, losses may happen.

Regular funds through MFD with CFP advice are safer.

CFP will do goal review, fund analysis and rebalancing.

This adds value and protects your goals from derailment.

Always go through a trusted CFP for a 360-degree plan.

Your long-term wealth deserves the right expert attention.

Finally – Our Insights for You

You are on a great track with vision and discipline.

You are investing smartly across equity and debt.

With minor changes, your plan can become stronger.

Keep focus on diversification and risk management.

Review your goals and progress yearly with expert help.

Stick to your plan even during market falls.

Continue your SIP step-up and never skip contributions.

Use professional guidance to ensure smooth journey.

Your retirement will be financially independent and stress-free.

This approach will help you lead a proud, peaceful life post-60.

Stay committed and consistent. You are doing excellent already.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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