The year 2017 well and truly belonged to mutual funds, especially equity mutual funds. Mutual Funds collected more than Rs 6,222 Crores for the month of December 2017 via SIPs. This is a record of sorts.
The Union Budget 2018-19 introduced an LTCG tax on equity oriented mutual funds, where you have to pay tax at the rate of 10% on long term capital gains (LTCG), on gains in excess of Rs 1 Lakh, arising from the transfer of equity shares/equity oriented mutual funds.
A new Section has been inserted, which provides a method to grandfather the long-term capital gains on equity funds, earned till January 31st 2018, and sold after March 31st 2018.
After the introduction of LTCG, investors heavily sold equity mutual funds, as there was no LTCG tax till March 31st 2018. Now, investors need a new strategy to invest in mutual funds for 2018-19.
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Systematic Investment Plans popular called SIPs, is a method of investing in mutual funds. You invest small amounts regularly; say once each day, month or fortnight in a mutual fund.
You can invest just Rs 500 a month in an SIP of a mutual fund. If you are already investing in mutual funds via SIPs, make sure to continue the SIPs for 2018-19.
Invest in SIPs in 2018-19 and increase your investments, as income rises.
SEE ALSO: Your 2 Minute Guide To SIP
If you are investing in mutual funds for the first time, choose funds with a proven track record. Do a background check on the mutual fund, before investing your hard earned money. Don’t just look at the returns offered by the mutual fund. Also take a look at the track record of the fund manager, and the TER (Total Expense Ratio) of the mutual fund.
For those who don’t know, the total expense ratio (TER) is a measure of the total cost of the fund to you (the investor). Check the returns on the mutual fund, in the time you plan to invest called the time horizon. Let’s say you want to invest in an equity mutual fund to buy a car in 3 years.
While choosing a fund, don’t just look at the returns of the past year. Check the returns over 3-5 years, to get a better idea on the performance of the mutual fund.
SEE ALSO: SIP For Retired People
Why do you invest in mutual funds? Is it not to create wealth? An investment in ELSS which is a tax saving mutual fund, not only creates wealth, it also saves tax. You get a tax deduction up to a maximum of Rs 1.5 Lakhs a year, under Section 80C, for an investment in ELSS.
Yes, there’s LTCG tax on equity funds, but a 10% tax on long-term capital gains exceeding Rs 1 Lakh a year, is not much. Tax on FD interest is higher.
Invest in ELSS for the financial year 2018-19. Be Wise, Get Rich
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