If a mutual fund of Rs. 5 Lakh investment value is redeemed after five years and the amount received on redemption is 8.75 lakhs, how much will be the tax?

Ans: Hi Gaurav
Taxability of ELSS MF would be dependent on your holding period as also the capital gain that arises on the said redemption.

Accordingly, if you have redeemed the ELSS MF within 3 years of acquiring them then the amount of deduction that you claimed on account of such investment would be added to your current income.

Additionally, the gain on the redemption would be taxed as capital gain

Ans: Tax on redemption of mutual fund depends on holding period and type of scheme. Equity and debt scheme have different tax rate.

Short term gain from equity based schemes will be taxed @15%
Long term gain from equity based schemes will be taxed @10% above 1 lakh
Short term gain from debt based schemes will be taxed slab rate
Long term gain from debt based schemes will be taxed @20%

Ans: Tax Implications of Redeeming Mutual Fund Investment
Congratulations on the growth of your investment! Let's delve into the tax implications of redeeming your investment in Mirae Asset Healthcare mutual fund.

Understanding Capital Gains
When you redeem your mutual fund units, any profit you earn is considered capital gains and is subject to taxation. Capital gains are classified as either short-term or long-term based on the holding period.

Short-term Capital Gains
If you redeem your mutual fund units within three years of purchase, the resulting gains are considered short-term capital gains. These gains are added to your taxable income and taxed according to your applicable income tax slab rate.

Long-term Capital Gains
If you hold your mutual fund units for more than three years before redeeming, the gains are classified as long-term capital gains. Long-term capital gains on equity-oriented mutual funds are taxed at a flat rate of 10% without indexation benefits, provided the gains exceed ?1 lakh in a financial year.

Tax Calculation
In your case, since the investment was made in November 2018 and the present value is ?3.3 lakhs, the investment has been held for more than three years. Therefore, the gains would be classified as long-term capital gains.

The tax would be calculated as 10% of the gains exceeding ?1 lakh. Let's say your total gain is ?2.3 lakhs (?3.3 lakhs - ?1 lakh), then the taxable amount would be ?1.3 lakhs (?2.3 lakhs - ?1 lakh). So, the tax payable would be ?13,000 (10% of ?1.3 lakhs).

Mitigating Tax Liability
There are certain strategies to mitigate your tax liability:

Tax-saving Investments: Consider investing in tax-saving instruments like Equity Linked Savings Schemes (ELSS) or Public Provident Fund (PPF) to avail of deductions under Section 80C.

Tax Loss Harvesting: If you have other investments with capital losses, consider selling them to offset the capital gains from your mutual fund investment.

Conclusion
Redeeming your mutual fund investment entails tax implications based on the holding period and gains accrued. Understanding these implications can help you plan your finances effectively.

If you need further assistance in tax planning or investment strategies, feel free to reach out. I'm here to help you navigate through your financial journey.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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.

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Actively managed funds offer several advantages over index funds.

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Disadvantages of Direct Funds

Investing in direct funds has some drawbacks.

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

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Using Regular Funds with a Certified Financial Planner

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

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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