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Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 05, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Asked by Anonymous - Nov 29, 2023Hindi
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Hi. I am a housewife and doing small investments thru Sip in mutual funds. If I sale all mutual funds after 3 to 4 years, will i have to pay tax during IT filling or automatically tax will be deducted and funds will be credited to my bank account?

Ans: If you sell your mutual funds after holding them for 3 to 4 years, you may be subject to capital gains tax on any profit earned from the sale. The tax implications depend on whether the gains are classified as short-term or long-term capital gains.

For equity mutual funds held for more than one year, any gains exceeding Rs. 1 lakh are subject to long-term capital gains tax at a rate of 10% without indexation. However, gains up to Rs. 1 lakh are exempt from tax. For gains realized within one year of investment, they are considered short-term capital gains and taxed at a rate of 15%.

Tax on capital gains from mutual funds is not automatically deducted. It's your responsibility to calculate and report these gains while filing your income tax return. You can utilize the consolidated statement provided by your mutual fund house to determine the gains and report them accurately. If there are any taxes due, you would need to pay them while filing your income tax return.
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  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 13, 2024

Asked by Anonymous - May 26, 2024Hindi
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let me know that if i take sip of one mutual fund monthly 50000 for 5 years how will be the income tax for capital gains?
Ans: If you invest Rs 50,000 monthly in a mutual fund through SIPs for five years, the taxation of your gains depends on the type of mutual fund and the holding period. It’s important to understand how capital gains taxes work to plan your investments efficiently.

Types of Capital Gains

Short-Term Capital Gains (STCG): Gains from units held for less than three years are considered short-term. These are taxed at a higher rate.

Long-Term Capital Gains (LTCG): Gains from units held for more than three years are considered long-term. These attract a lower tax rate.

Taxation Based on Mutual Fund Type

Equity-Oriented Funds: If your mutual fund invests primarily in equity, any gains after holding for more than one year are long-term. These are taxed at 12.5% if the gain exceeds Rs 1.25 lakh in a financial year. Short-term gains (held for less than one year) are taxed at 20%.

Debt-Oriented Funds: Capital gains are added to your income and taxed at your income tax slab rate.

SIP Specific Taxation

Individual SIPs Treated Separately: Each SIP is considered a separate investment. So, if you invest Rs 50,000 monthly, each investment is tracked individually for tax purposes. For example, SIPs made in the first year will become long-term after one year, but those made in the fifth year will be short-term until the next year.

Rolling Nature of Investments: Since you’re investing monthly, you’ll have a mix of short-term and long-term capital gains when you start redeeming. You need to plan redemptions carefully to minimise taxes.

Disadvantages of Index Funds

Limited Flexibility: Index funds cannot adapt to market changes. They simply track the market, which might not always align with your financial goals.

Potential for Lower Returns: Actively managed funds can outperform the market, offering potentially higher returns. Index funds miss out on this opportunity.

The Role of Regular Funds Managed by CFPs

Expert Management: Regular funds managed by a Certified Financial Planner offer tailored advice. This ensures your investments align with your financial goals and risk profile.

Better Tax Planning: A CFP can help you manage your redemptions to minimise taxes. They can also recommend tax-efficient investment strategies.

Investment Strategy Considerations

Invest in Tax-Efficient Funds: Consider funds that offer tax benefits or have a tax-efficient structure. This can maximise your post-tax returns.

Monitor Tax Implications: Keep track of your capital gains and plan redemptions accordingly. Avoid unnecessary taxes by holding investments for the required period.

Consider Increasing SIPs Over Time: As your income grows, increase your SIP contributions. This will enhance your wealth creation without a significant increase in tax liability.

Final Insights

Investing Rs 50,000 monthly through SIPs is a strong strategy for wealth creation. However, understanding the tax implications is crucial. By focusing on the right type of funds and managing your redemptions wisely, you can optimise your returns and minimise your tax liability. Regularly consulting with a Certified Financial Planner will help ensure your investments remain tax-efficient and aligned with your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 27, 2024

Asked by Anonymous - Jun 28, 2024Hindi
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Hi Do i have to pay any taxes during the redemption of mutual fund i have a corpus of 12 lakhs N wat inestment plan i should hv for my 17 yr old daughter n 8 yr old son with monthly investment of 20k
Ans: When you redeem mutual funds, you may need to pay taxes. This depends on the type of mutual fund and the holding period.

Equity Funds: Gains from equity mutual funds held for over a year are long-term capital gains (LTCG). LTCG over Rs 1 lakh are taxed at 10%.

Debt Funds: Gains from debt funds held for over three years are long-term capital gains. These are taxed at 20% after indexation. Gains from debt funds held for less than three years are short-term capital gains (STCG). STCG are added to your income and taxed as per your income tax slab.

Hybrid Funds: Taxation depends on the equity and debt components. For hybrid funds with over 65% equity, taxation is like equity funds. Otherwise, it is like debt funds.

Ensure to consult a tax professional for detailed guidance on your specific case.

Investment Plan for Your Children

Investing for your children's future is crucial. Here’s a structured plan for your 17-year-old daughter and 8-year-old son.

Assessing Goals and Time Horizons

Daughter: She will need funds soon for higher education or other expenses. Your investment horizon is short-term (1-3 years).

Son: You have a longer horizon (10+ years) for his higher education and other goals.

Short-Term Investment Strategy for Your Daughter

Since you need funds soon, opt for safer investments.

Debt Mutual Funds: Suitable for short-term goals. They offer better returns than savings accounts and fixed deposits.

Liquid Funds: They are low-risk and provide reasonable returns. Suitable for funds needed in a year or less.

Ultra-Short Duration Funds: These are slightly higher risk but can offer better returns than liquid funds.

Long-Term Investment Strategy for Your Son

You have time to take advantage of the power of compounding.

Equity Mutual Funds: These are ideal for long-term goals. They offer higher returns but come with market risks.

Diversified Equity Funds: They spread the risk across various sectors. Good for building wealth over the long term.

Systematic Investment Plan (SIP): Invest regularly in equity funds. This mitigates market volatility and averages out the cost of investment.

Balancing Your Investments

Regular Monitoring: Review your investments regularly. Adjust them based on market conditions and goal progress.

Diversification: Spread your investments across different asset classes. This reduces risk and optimizes returns.

The Benefits of Actively Managed Funds

Actively managed funds offer several advantages over index funds.

Potential for Higher Returns: Skilled fund managers aim to outperform the market.

Flexibility: Managers can make timely decisions based on market conditions.

Risk Management: Active funds can avoid poor-performing stocks or sectors.

Disadvantages of Direct Funds

Investing in direct funds has some drawbacks.

Lack of Guidance: You may miss out on professional advice.

Time-Consuming: Managing investments yourself requires time and effort.

Potential for Mistakes: Without expert guidance, there's a risk of making uninformed decisions.

Using Regular Funds with a Certified Financial Planner

Professional Advice: A Certified Financial Planner (CFP) can provide tailored advice.

Better Planning: CFPs help in aligning investments with your financial goals.

Peace of Mind: You get professional support, reducing stress and ensuring better financial health.

Final Insights

Investing for your children's future requires careful planning. Use debt funds for short-term needs and equity funds for long-term goals. Regular monitoring and professional advice will help you achieve your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Latest Questions
Ramalingam

Ramalingam Kalirajan  |7101 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Nov 22, 2024

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My age 62, male, getting rental income Rs. 90k nett. Already subscribing 12.5k in PPF for the past 2 1/2 years. No other investments. My target is 5 crores in 10 years. I already have Mediclaim Rs.50 lakhs for me & wife . Please advice me what to do.
Ans: Your current financial foundation is strong and shows promise:

A rental income of Rs. 90,000 per month provides consistent and predictable cash flow. This stability can serve as the backbone for your investment strategy.

PPF contributions of Rs. 12,500 per month for 2.5 years reflect disciplined saving. However, its returns may be insufficient to achieve a high-growth target like Rs. 5 crores in 10 years.

A robust Mediclaim policy of Rs. 50 lakhs for you and your wife ensures adequate health coverage. This safeguard allows you to focus on wealth-building without worrying about medical emergencies.

Despite these positive factors, achieving Rs. 5 crores in 10 years requires a carefully crafted and growth-oriented strategy.

Defining and Prioritising Your Financial Goals
Achieving Rs. 5 crores is ambitious yet achievable with a focused approach:

Define this target as your primary financial goal over the next decade.

Break it into manageable milestones: for example, Rs. 50 lakhs every 1-2 years in cumulative investments and growth.

Prioritise high-return investments that align with your risk tolerance and financial capacity.

Optimising Existing PPF Contributions
While PPF is a secure investment, its growth potential is limited:

Returns: PPF currently offers an interest rate of approximately 7-7.5%, which barely outpaces inflation.

Contribution Review: Consider capping your PPF contributions at Rs. 1.5 lakh annually (to utilise the Section 80C benefit). This ensures that excess funds are redirected to higher-return investments.

PPF can serve as a low-risk component of your portfolio but should not dominate your investment strategy.

Building a Diversified Investment Portfolio
A diversified portfolio will provide a balance of risk and reward. Include the following components:

1. Equity Mutual Funds for Growth
Equity mutual funds are essential for achieving high returns over the long term:

Large-Cap Funds: These invest in established companies and offer stability with moderate growth. They are ideal for a portion of your portfolio to reduce risk.

Multi-Cap or Flexi-Cap Funds: These provide exposure to companies of all sizes, offering growth and diversification.

Sectoral and Thematic Funds: Avoid these unless you have a high risk tolerance and understand market dynamics.

ELSS Funds: These not only provide tax savings under Section 80C but also deliver market-linked returns.

Why Avoid Index Funds?

Index funds may offer simplicity and lower expense ratios, but they lack flexibility. They cannot adapt to market conditions or capitalise on outperforming sectors. Actively managed funds, on the other hand, have the potential to outperform the market, especially in a developing economy like India.

Start with a Systematic Investment Plan (SIP) in selected funds to build wealth steadily.

2. Debt Mutual Funds for Stability
Debt funds add stability to your portfolio and reduce overall risk:

Choose funds with low credit risk and moderate duration to ensure safety and predictable returns.

Debt funds are suitable for short- to medium-term goals or as a fallback during market corrections.

Taxation Note: Both LTCG and STCG on debt funds are taxed as per your income tax slab. This should be factored into your planning.

3. Balanced Advantage Funds
Balanced advantage funds (BAFs) dynamically allocate assets between equity and debt. They:

Provide exposure to equity while minimising downside risk.

Offer a suitable option for someone nearing retirement but seeking growth.

4. Gold Investments for Diversification
Allocate a small portion (5-10%) of your portfolio to gold:

Gold serves as a hedge against inflation and currency depreciation.

Choose gold ETFs or sovereign gold bonds for ease of liquidity and better returns.

Emergency Fund Creation
Having an emergency fund is non-negotiable:

Maintain at least 6-12 months of expenses in liquid investments like liquid mutual funds or high-interest savings accounts.

This ensures liquidity for unforeseen events without disturbing your long-term investments.

Focus on Retirement Planning
At 62, balancing growth and safety becomes critical:

Estimate your monthly retirement expenses, considering inflation over the next 10-15 years.

Your target of Rs. 5 crores should primarily serve as your retirement corpus.

Allocate assets thoughtfully:

60-70% in equity funds for growth.
30-40% in debt funds for stability.
Periodically rebalance your portfolio to maintain this allocation.

Strategic Tax Planning
Tax efficiency can significantly impact your returns:

Continue using Section 80C to its full potential, including ELSS funds and PPF.

Consider the National Pension System (NPS) for an additional Rs. 50,000 deduction under Section 80CCD(1B).

Be mindful of the new taxation rules for mutual funds:

Equity Mutual Funds: LTCG above Rs. 1.25 lakh is taxed at 12.5%; STCG at 20%.
Debt Funds: LTCG and STCG are taxed as per your income slab.
Consult a Certified Financial Planner to optimise your tax strategy.

Regular Portfolio Monitoring and Rebalancing
Investing is not a one-time activity:

Review your portfolio every six months or annually to track performance.

Rebalance your asset allocation periodically to align with your financial goals and risk appetite.

Stay committed to SIPs even during market downturns, as this ensures cost-averaging.

Additional Suggestions
Avoid Over-Reliance on PPF
While PPF is safe, it is not sufficient for wealth creation. Shift excess contributions to equity-based investments for better returns.

Avoid Direct Stocks
Direct equity investing requires time, expertise, and constant monitoring. It carries higher risk and may lead to losses without proper research. Instead, rely on equity mutual funds managed by professionals.

Avoid Mixing Insurance and Investments
Do not invest in ULIPs or endowment plans, as they offer suboptimal returns. Stick to pure insurance products for protection and mutual funds for growth.

The Role of a Certified Financial Planner
To achieve Rs. 5 crores, a well-crafted financial plan is essential. A Certified Financial Planner (CFP) can:

Analyse your current investments and recommend improvements.

Design a customised strategy tailored to your income, expenses, and goals.

Provide periodic reviews to ensure you stay on track.

Finally
Achieving Rs. 5 crores in 10 years is a realistic goal if you adopt a disciplined and diversified approach.

Optimise your PPF contributions and channel excess funds into higher-growth investments.

Build a diversified portfolio with equity and debt mutual funds.

Include a small allocation to gold and maintain an emergency fund.

Stay consistent with your SIPs and review your investments regularly.

Work with a Certified Financial Planner to create a personalised roadmap.

By following these steps, you can secure your financial future and meet your goals.

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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