What is difference between mutual fund and etf and the tax angle associated with both.

Ans: Hello and thanks for writing to me.

I believe you are writing about investing in Equity Linked Savings Schemes investments to save on income taxes.

Per current rules, if you invest Rs.1.5 Lakh in ELSS schemes of various mutual fund houses, you can save around Rs.46,800 every year in income taxes under Section 80C of the Income Tax Act.

Investing in these funds carry a mandatory 3-year lock-in and you will not be able to redeem the investment till 3 years have passed.

I recommend you consult a tax advisor who can help you plan your taxes and explain how gains in investments in equity, debt or other mutual fund types are taxed.

Ans: Assessing good mutual funds is crucial for building a robust investment portfolio. Here's how you can distinguish them and understand the difference between mutual funds (MF) and new fund offers (NFO):
• Understand your investment objectives, risk tolerance, and time horizon before selecting mutual funds. This will help you align your investments with your financial goals.
• Look for funds with a consistent track record of performance across different market cycles. Analyze factors such as returns, volatility, expense ratio, and fund manager expertise.
• Consider the fund's investment strategy and portfolio composition. Ensure that the fund's objectives match your investment goals and risk profile.
• Check the fund's asset allocation and diversification to minimize risk and enhance potential returns. A well-diversified portfolio spreads risk across various asset classes and market segments.
• Assess the fund house's reputation, management team, and investment process. Choose funds managed by experienced professionals with a proven track record of delivering value to investors.
• Understand the difference between mutual funds and new fund offers (NFOs). MFs are existing funds with a track record, while NFOs are new schemes launched by fund houses.
• NFOs may offer opportunities to invest in unique themes or asset classes but lack a performance track record. Investors should carefully evaluate NFOs based on their investment objectives and risk appetite.
• Unlike established mutual funds, NFOs carry higher uncertainty and may take time to establish a performance track record. Investors should exercise caution and conduct thorough research before investing in NFOs.
Remember, due diligence and research are essential when selecting mutual funds or evaluating new fund offers. Consult with a Certified Financial Planner (CFP) to understand your investment needs better and make informed decisions aligned with your financial goals.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner
www.holisticinvestment.in

Ans: Interest Income can be offered to tax on accrual basis or receipt basis. Thus, you have option to offer all the Income from other sources on receipt basis but once option is taken you can not change it.

However, if TDS is deducted on interest income, practically additional care will be required to reconcile Income as per 26AS and as per receipt.

Ans: Both are good and the selection solely depends on your requirements. Investing in mutual funds is better as they are actively managed by the fund managers and their selection depends on your financial goals.

Kindly share your details such as age, financial goals, income & exoenses, investments and time horizon for which you are looking to invest. Based on these details, can guide which is a better MF option in your case.

Or you can consult a professional Certified Financial Planner - a CFP who can guide you with exact funds to invest in keeping in mind your age, requirements, financial goals and risk profile.

Best Regards,
Reetika Sharma, Certified Financial Planner
https://www.instagram.com/cfpreetika/

Ans: That’s wonderful to hear. It’s great that you wish to learn more before investing. Mutual funds can help you reach your goals with discipline and planning. The key is to choose and manage them in the right way.

Let me guide you with a clear, complete, and simple understanding.

» Knowing what mutual funds really do

Mutual funds collect money from many investors and invest in shares, bonds, or both. Each fund has a goal — growth, income, or stability. You become a part owner of that pool. Your money grows as the value of the investments grows.

They offer professional management, diversification, liquidity, and convenience. This means your money is handled by experts, spread across many companies, and can be withdrawn easily when needed.

So, mutual funds are ideal for investors who want long-term wealth creation without the daily stress of tracking the stock market.

» Importance of linking funds to your goals

Before choosing a fund, decide your goals. Are they short-term, medium-term, or long-term?

For short-term goals (within 3 years), you should prefer safer options like liquid or ultra-short-term funds.

For medium-term goals (3 to 5 years), you can mix balanced or conservative hybrid funds.

For long-term goals (beyond 5 years), equity funds work best for growth and inflation-beating returns.

This goal-based method prevents emotional decisions and aligns risk with your purpose.

» Why actively managed funds are better

Many investors think index funds are enough. But index funds only copy the market index. They include both good and weak companies. They cannot take protective action during market falls. There is no human judgment.

Actively managed funds are run by skilled fund managers who study companies and market conditions. They can buy undervalued stocks and avoid risky ones. This flexibility helps protect your capital during market stress and improves long-term returns.

For Indian investors, where markets are still developing, actively managed funds perform better than index funds over time.

» Importance of diversification

Never invest all your money in one fund or one category. Spread your money across large-cap, mid-cap, small-cap, and hybrid funds. This diversification helps balance risk and return.

When one part underperforms, another can support. The result is smoother growth. But avoid too many funds. Four to six well-chosen funds are enough for most investors.

» Role of SIP and lumpsum

Systematic Investment Plan (SIP) helps you invest a fixed amount regularly. It builds habit, reduces market timing risk, and takes advantage of cost averaging.

If you have a large sum ready, you can invest part of it as lumpsum and the rest through SIP. This approach combines immediate participation and gradual entry.

Continuing SIPs even during market corrections builds long-term wealth.

» Review and monitoring

Selecting funds is only the first step. You must also review them at least once a year. A Certified Financial Planner can help check each fund’s performance, consistency, and suitability.

If a fund underperforms for two years or more, you can switch to a better one. But avoid changing too often. Mutual funds work best when you stay invested long enough for compounding to take effect.

» Tax awareness

You should understand mutual fund taxation rules:

For equity mutual funds, long-term capital gains above Rs 1.25 lakh per year are taxed at 12.5%. Short-term gains are taxed at 20%.

For debt mutual funds, gains are taxed as per your income tax slab.

This makes equity mutual funds more tax-efficient for long-term goals compared to fixed deposits.

» Avoiding common mistakes

– Don’t invest without linking your goal and time frame.
– Don’t withdraw early during short-term market falls.
– Don’t chase high past returns.
– Don’t rely on random tips or online lists.

Instead, follow a disciplined and reviewed approach. Long-term investors always benefit more from patience and process.

» Importance of professional guidance

A Certified Financial Planner can help you build the right portfolio based on your goals, risk comfort, and timeline. They monitor your funds regularly, rebalance when needed, and guide you through all market phases.

Investing through a CFP-backed Mutual Fund Distributor is better than going direct. Direct plans may look cheaper but lack advice, review, and emotional guidance. The value of correct decisions far exceeds the cost difference.

So, work with a Certified Financial Planner who can offer 360-degree solutions — investment planning, insurance protection, retirement planning, and tax optimisation — all integrated for your peace of mind.

» Building your foundation

Before you begin, ensure you have:

An emergency fund for 6 months of expenses.

Health insurance and term insurance cover.

A clear list of your goals.
Once these are ready, you can start your mutual fund journey confidently.

» Finally

Mutual funds are powerful when used with discipline, goal clarity, and professional monitoring. Choose actively managed funds through a Certified Financial Planner. Stay invested for long term, review annually, and keep patience during market changes.

Your savings will grow steadily, and your financial future will become secure. You have already taken the right step by seeking advice — now, plan it properly and stay consistent.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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