Bank FD v/s Banking Fund

Bank FD v/s Banking Fund

We Indian love very much keep deposit in bank FD. Since my childhood I have seen immense faith of people in bank FD because they all think that bank FD is the safest instrument on this earth to keep their hard earned money. Very few people know that the bank only give guarantee maximum Rs 1 lakh through insurance in case of any system collapse or bankruptcy. It means more than Rs 1 lakh in bank always in risk. However, there are very low chances to fail the bank because our central bank RBI is one of the top regulator in world. Every financial instrument have their own risk and reward. So we are going to do a small comparison between bank FD and banking fund.

For example a person invest Rs 1,00,000 in SBI bank FD and in a banking Fund on 20th May 2003. After 11 year the value of invested Rs 1 lakh in SBI bank FD grows up to Rs 2,66,190. On this amount we have to pay tax according to our income slab and bank deducts TDS direct at the time of withdrawing the money. Bank FD is a secure investment compare with other available instruments. It hardly beats the inflation. Therefore it is not a wealth creator.

In other hands, banking funds invest in banking stocks. After 11 year, the value of invested Rs 1 lakh grows up to Rs. 14,67,000. And the amazing thing that there is no TDS deduction and it is tax free. It means you have not to pay tax on your gain. The only risk is volatility because equity is always volatile and checks your patience. It is a wealth creator instrument for long term investor.

If you have doubt about investment product and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for conducting seminar in your city, just drop the mail.

Equity : A broad view as asset class

Equity : A broad view as asset class

There are many investment avenues available in the market like equity investment, fix deposit, debt/ bonds, metal, arts etc. We can divide financial assets in 3 types. These asset types are equity, debt and gold. In this article we will discuss about equity investment.

We are often told that equity investments are subject to risk and in nature it is very volatile. In simple terms, equity means the ownership, investor who own equity in company participate in company’s growth like a promoter. If you hold equity in a particular company, it means you become beneficial owner of that company. As an equity shareholder, you also get the opportunity for the vote on important business decision.

Advantage in equity investment:

Profit making companies share their profit with shareholder as a dividend and it is totally tax free as per the current law. Over a long period you can make a capital gain through increase in share prices by investing in good companies. As per current law, in our country long term capital gain in equity is nil. It has outperformed in terms of return to other asset class over the long period. It has ability to beat inflation and generate super return. It is very crucial investment to achieve long term goal.

It has greater liquidity compare with other assets. The transaction of shares happened on exchanges and it is regulated by SEBI. Equity trading mechanism is very transparent and no room for wrongdoing. Equity investment play very important role in the economic growth of the country. It mobilize funds from public towards various sector which is very crucial for country’s development.

Disadvantage in equity investment:

Return of Investment in equity is not guaranteed. It depends on company’s performance. If company is doing better, you will get higher return but if it is not doing good, then you have risk to lost your capital also. In short run, it is very volatile so it is very risky investment in short term investment point of view. If you have invested in bad companies or enter when the prices are very high then you can lost substantial amount of money.

Equity investment for whom and how we can invest in it. We will discuss about this in next article. For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

Mutual Fund Taxation

The awareness of mutual fund is increasing day by day. There are different types of mutual fund available in the market according to risk and time horizon. You can invest in any mutual fund according to your financial goal and risk profile. Often we are confused about tax liability on mutual fund return. However tax rule is subject to the matter of change in every year depends upon budget of Govt of India. We are here trying to find out tax liability of mutual fund return for financial year 2012-13.
We can divide mutual fund into 2 parts for taxation point of view. One is dividend paying mutual fund and the other is non dividend paying mutual fund. So first we talk about tax implication on dividend received by mutual fund unitholder.


Tax for Dividend paying Equity Mutual Fund:
The dividend received in hand of unitholder is completely tax free. It is also tax free to the mutual fund distribution house. It means the fund house also not liable to any tax on distribution income or dividend. So in equity mutual fund dividend is tax free for unitholder and fund house both.


Now we move on towards capital gain. If we make profit and hold unit more than 12 month we have to pay Long Term Capital Gain Tax and if we hold less than 12 month (make profit) we are liable to pay Short Term Capital gain Tax.


Capital Gain for Equity Mutual Fund:
In equity oriented schemes there are no long term capital gain tax at all for all categories investor.
The Short term capital gain is different for different category investor. For individual / HUF , domestic company and NRI it is (15%+ 3% cess)15.450%, If domestic company income more than 1 Crore (subject to marginal relief)  then it is ( 15% + 5% surcharge + 3%) 16.223.


DDT for Debt Mutual Fund:
However, dividend received in hand of unitholder is completely tax free in the debt mutual fund also. But this is taxable to the mutual fund distribution house. The fund house have to pay DDT (Dividend Distribution Tax) on distribution income. It means the investor will get dividend in their hands after DDT paid by the fund house.
For individual/ HUF and NRI, DDT are (12.5% + 5% Surcharge + 3% Cess) 13.519%. For domestic company it is (30% + 5% Surcharge + 3% Cess) 32.445%.


DDT for Money Market and Liquid Mutual Fund
There are also one more category in debt mutual fund. These schemes are also same as debt mutual fund. For the purpose of DDT it has been maintained separately here.  For individual/ HUF and NRI, DDT are (25% + 5%Surcharge + 3%Cess) 27.038%. For domestic company it is (30% + 5% Surcharge + 3% Cess) 32.445%.

Capital Gain for Debt Mutual Fund:
For all type of debt mutual fund, the unit holder can pay long term capital gain tax with indexation or without indexation whichever is lower. For individual / HUF, domestic company and NRI it is (10% + 3% Cess) 10.300% without indexation and (20% + 3%Cess) 20.600% with indexation.
If domestic company, income more than 1 Crore (subject to marginal relief) then long term capital gain without indexation (10% + 5% Surcharge + 3% Cess)10.815% and with indexation (20% + 5% Surcharge + 3% Cess) 21.630%.
The short term capital gain tax levied on individual / HUF, and NRI depend on their respective income tax slab. For example, if anyone in 30% income tax slab then short term capital gain tax would be (30% + 3% Cess) 30.900%. For domestic company it would be 30.900% and if domestic company income more than 1 Crore (subject to marginal relief) then it is (30% + 5%Surcharge + 3% Cess) 32.445%.

Note that short term/long term capital gain tax will be deducted at the time of redemption of units in case of NRI investors. Securities transaction tax (STT) will be deducted on equity funds at the time of redemption and switch to the other schemes. Mutual Fund would also pay securities transaction tax wherever applicable on the securities bought / sold

If you have any query about mutual fund taxation related please feel free to ask.

Regards,

Arvind Trivedi

Certified Financial Planner
arvind.trivedi79@gmail.com