Income Tax (India)

Invest for long term – an advice routinely given by many Mutual Fund distributors and investment advisors. This is especially true in case of certain Mutual Funds – such as equity and balanced funds. Let us understand why the professionals give such advice. What really happens in the long term? Is there a benefit of staying invested for long term? Consider your Mutual Fund investment as a good quality batsman. Every good quality batsman has a certain style of batting. However, each good quality batsman would be able to accumulate lots of runs, if he continues to play for years. We are talking about the record of a “good quality” batsman. Every good batsman would go through some good and poor performances. On average the record would be impressive. Similarly, a good Mutual Fund would also go through some ups and downs – often due to factors beyond the control of the fund manager. An investor would benefit if one stays invested through these funds for long periods of time. So, as long as...

You may invest in mutual funds for regular income, capital appreciation or both depending on the mutual fund type. You could measure the return from mutual funds using CAGR (Compound Annual Growth Rate) and XIRR (Extended Internal Rate of Return). You will find CAGR showing you the rate at which your mutual fund investment grows per year over the investment period. However, you cannot use CAGR to calculate the return for multiple cash flows. You may consider using XIRR to calculate mutual fund returns for multiple cash flows. For example, you may use XIRR to determine the return from mutual fund investments through the systematic investment plan (SIP).  What is XIRR? You can put a lump-sum amount in a mutual fund. You have a one-time redemption where you sell the entire investment after some time. Investing through a lump sum involves two cash flows. You have a cash outflow which is your investment, and a cash inflow (redemption).  You may consider using CAGR to calculate the ...

Mutual funds   investment may seem complicated for first-time investors as it can be confusing at times. Understanding how mutual funds work is the first step in your investment journey. You can invest as low as Rs 500 in a mutual fund through SIP, which may not be possible with most other investment options. There are several mutual funds available, and you may invest in funds whose investment objectives and risk levels are in sync with your risk profile. How do Mutual Funds work A mutual fund is formed when an asset management company (AMC) pools investments from various individuals and institutional investors with common investment objectives. A fund manager professionally manages the pooled investment by strategically investing in securities to generate maximum returns for the investors in line with the investment objectives of the fund. Fund managers are professionals with an excellent track record of managing investments and have an in-depth understanding of markets. The fund...

We are in the month of February and the deadline for doing your tax planning for this financial year’s investments is drawing nearer. If have not done your tax planning for Assessment Year 2022-23 (FY 2021-22), then you should do it now. The last date for making tax saving investments for AY 2022-23 is 31 st  March 2022. Section 80C of Income Tax Act of 1961 allows investors to claim deduction of up to Rs 150,000 from their taxable incomes by investing in certain schemes which are eligible u/s 80C. These schemes include Employee and Voluntary Provident Fund (EPF and VPF), Public Provident Fund (PPF), National Savings Certificates (NSC), 5 year tax saver bank fixed deposits, life insurance policies (both traditional and unit linked) and mutual fund Equity Linked Savings Schemes (ELSS). How to plan your taxes? There are various sections in Income Tax Act, which can enable investors to claim tax deductions but we will restrict ourselves only to section 80C in this article. The maximum...