The year 2017 was a great year for mutual funds, especially equity mutual funds. After demonetization, banks were flush with cash and cut down interest offered on fixed deposits. Many citizens started investing in mutual funds for the very first time, hoping to get returns much higher than FDs.
Citizens who were already investing in mutual funds, increased investments. The highly successful campaign, Mutual Funds Sahi Hai by AMFI, encouraged citizens to invest in mutual funds, with just Rs 500. Mutual Funds Sahi Hai also educated first time investors on the need to invest in mutual funds.
Citizens poured money in mutual funds via SIPs. Mutual Funds collected a record Rs 6,222 Crores via SIPs in December 2017. Want to know more on mutual funds? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products.
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1. Many investors exited mutual funds after the Union Budget
The Finance Minister Arun Jaitley in his Union Budget 2018 speech stated that the Government was bringing back LTCG Tax on equity-oriented funds, including equity mutual funds and ELSS (a tax saving mutual fund). If you stay invested in equity mutual funds for a year or more, profits are called long term capital gains (LTCG). After April 1st 2018, LTCG on equity mutual funds is taxed at 10%, on gains/profits above Rs 1 Lakh a year.
However, the Government also introduced a grandfathering clause, where all gains up to 31st January 2018 would be grandfathered, which means tax-exempt. But, if you sold equity mutual funds before March 31st 2018, there’s no LTCG tax. So, many investors sold equity mutual funds in a hurry, exiting the investment.
2. This may be the right time to invest in mutual funds
Many citizens were in a panic after the Government introduced LTCG Tax on equity funds and sold investments. But, this may be the right time to invest in mutual funds. Equity mutual funds in spite of the 10% LTCG tax; still give much higher returns than most investments, if held for the long-term.
If you are a long-term investor, LTCG tax is nothing to worry about. If you are a small investor in equity mutual funds, LTCG tax is not an issue at all, as this tax is applicable only on gains exceeding Rs 1 Lakhs a year.
An investment in equity mutual funds is very volatile in the short-term and is not suitable for short-term goals. If you are investing in equity mutual funds for long-term goals with an investment horizon of 5-7 years, there’s no right time to invest. It’s always a good time to invest in equity mutual funds, so why not right now.
Whenever you talk mutual funds, the first thing that comes to mind is equity mutual funds. All mutual funds do not invest in stocks. Mutual funds called debt mutual funds, invest in fixed income securities or bonds. Debt mutual funds are not affected by volatility in stock markets. Debt mutual funds are less volatile than equity mutual funds and give returns slightly higher than FDs.
The time is right to invest in debt mutual funds if you are looking for a less risky investment, compared to equity mutual funds. If you stay invested in debt mutual funds for 3 years or more, long term capital gains enjoy indexation benefits. This makes debt mutual funds more tax-efficient than FDs.
SEE ALSO: When To Stop SIP And Exit Mutual Fund?
Systematic Investment Plans popularly called SIPs, are the best way to invest in mutual funds. With SIPs, every day is the right time to invest in mutual funds. SIPs allow you to invest small sums of money regularly, say once each day, month or fortnight in a mutual fund. You can invest in mutual funds via SIPs with just Rs 500 a month.
SIPs are a great way to invest in equity mutual funds. With SIPs there’s no need to time the stock markets. You simply spend time in the market. There’s no right time to invest in mutual funds. Now is the right time. If you are a long term investor, the LTCG tax should not bother you. Invest in the right mutual funds which match your financial goals and risk profile. Be Wise, Get Rich.
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