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Ans: Hello Salvankar,
It's great to hear that you're considering optimizing your investments by transitioning from regular mutual funds (MF) to direct MF. Let's delve into the implications of this transition:
1. Capital Gains Tax:
• When you transfer units from regular MF to direct MF, it is considered a redemption in the regular plan and a fresh purchase in the direct plan. Hence, any gains made on the redemption may attract capital gains tax.
• Long-Term Capital Gains (LTCG) tax applies if the units are held for more than one year, while Short-Term Capital Gains (STCG) tax applies if the units are held for less than one year.
2. Disadvantages of Investing Directly:
• Lack of Professional Guidance: Direct investing means you're managing your investments without the assistance of a Certified Financial Planner (CFP) or Mutual Fund Distributor (MFD). Without professional guidance, you may miss out on personalized advice and portfolio optimization.
• Research and Monitoring: Direct investors need to conduct their own research and monitor their investments regularly. This can be time-consuming and requires expertise in financial analysis and market trends.
• Behavioral Biases: Direct investors may fall prey to behavioral biases such as overtrading, emotional decision-making, and herd mentality, which can impact investment returns negatively.
3. Advantages of Investing Through an MFD:
• Personalized Advice: MFDs provide personalized financial advice tailored to your investment goals, risk tolerance, and financial situation. They help you navigate through market volatility and make informed investment decisions.
• Portfolio Diversification: MFDs offer access to a wide range of mutual funds across asset classes and fund houses, enabling portfolio diversification and risk management.
• Regular Monitoring and Review: MFDs monitor your investments regularly and provide ongoing support, including portfolio rebalancing and performance tracking. They help you stay disciplined and focused on your long-term financial goals.
In conclusion, while transitioning from regular MF to direct MF may save on commissions, it's essential to consider the potential capital gains tax implications and weigh them against the advantages of investing through an MFD. Consult with a CFP or MFD to assess the most suitable investment strategy based on your financial objectives and tax situation.
With Thanks & Regards, Salvankar
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

Ans: An individual who is resident in India and whose total income does not exceed Rs. 5,00,000 is entitled to claim rebate under section 87A​. Rebate under section 87A is available in the form of deduction from the tax liability. Rebate under section 87A​ will be lower of 100% of income-tax liability or Rs. 12,500. In other words, if the tax liability exceeds Rs. 12,500, rebate will be available to the extent of Rs. 12,500 only and no rebate will be available if the total income (i.e. taxable income) exceeds Rs. 5,00,000.

Ans: Hello Sarvothama and thanks for writing to me. If you can continue the SIP then your corpus can continue to grow larger over time.

If you need the funds, you can consider a SWP.

Redeeming the units thru a Systematic Withdrawal Plan and then using those funds for a SIP is not a good strategy as you will be redeeming profitable units, bearing the taxes on them and then again investing them in the same fund at higher NAV's.

Ans: Dear Sarvotham
PMS might seem alluring but my experience has been that the performance of most of them is patchy and quite irregular. A well performing PMS is generally not able to repeat the performance even the next year.

The reasons for the above are not very far to seek. PMS’ generally keep very concentrated portfolios and that too of mid and small stocks, and hence, the risks taken are very high. If the risk taken plays out, the PMS performs in that year. With your available money, you will have to invest in one single PMS since the minimum investment allowed is 50 Lakhs.

On the other hand, equity mutual funds typically have 40-60 stocks in portfolio and since there is no minimum investment limit like in PMS, you can have a well diversified portfolio which will reduce your risks and also have a balance.

My suggestion is to search out a good financial advisor and take his/her advice to manage the portfolio. That way you would you would not have to manage the portfolio yourself which you are finding difficult to do, costs will be much lower as the PMS typically charge much higher fees and you would also have a control on your portfolio which you will not have in PMS.

By the way, 61 years is not such a high age… my age is the same as yours!! 😊