No long-term capital gains tax levied on balanced funds

Published: November 4, 2014 4:55:52 PM

No long-term capital gains tax levied on balanced funds...

For short-term capital gains on selling equity mutual fund units, do I have to pay tax at the time of submitting the income tax return, or will the fund house deduct the tax and deposit the money with the IT department?     —Suraj Seth

For resident Indians making short- term gains on selling equity mutual funds, tax has to be paid by the investor. The fund house does not deduct the tax and deposit it with the income tax department.

How is the net asset value (NAV) for gold exchange-traded funds (ETFs) calculated? Is it done based on international gold price? Is the entire investment amount put in gold by the fund house?     —Ajay Mishra

The NAV of gold ETFs is based on Indian gold price. In gold ETFs, most of the amount is invested in physical gold. Some fund houses also have an option to invest part of the amount in gold deposit schemes.

If I invest in global funds operating in India, will transferring money from my non-resident (NRI) account in State Bank of
India, Bangalore, be considered illegal? In fact, I want to give the bank an auto transfer option to move the money to the fund house every month.     —Ashok Kumar

You can invest in global funds operating in India through your NRI account. You can also do a systematic investment plan (SIP) into these funds via an auto transfer option to the bank to move the money to the fund house.

How frequently should one look at switching funds if the markets are in a volatile phase?     —Gaurav Singh

For handsome returns from equities, it is important to have a long-term investment horizon.

Rather than trying to switch funds to take advantage of short-term volatility, you should invest in good mutual funds for a long period of time.

In a balanced fund, do I get any tax benefits such as those from an equity-linked savings scheme (ELSS). Also, will short- and long-term capital gains be applicable as part of the money is invested in debt?    —Pramod Rao

Unlike ELSS, balanced funds do not give any tax benefits under Section 80C. However, since they maintain an allocation of more than 65% in equities, they are taxed as equity mutual funds. So, there is no long-term capital gains tax on these funds.  Investors have to pay a short-term capital gains tax at 15%, just as in equity mutual funds.

What is the annual limit for cash transactions to buy mutual fund units? Are there any KYC norms even for cash payments?    —Gautam Gupta

Cash transactions of R50,000 per investor per financial year per mutual fund are permitted as per Sebi guidelines. While PAN may not be necessary for cash investments, fund houses require the investor to specify the bank account into which redemption and dividend proceeds are to be credited.

For a child plan, can I invest R2,000 every month for at least 20 years? What kind of returns can I expect? Also, are there any debt mutual fund products with a 20-year horizon?    —Sanjiv Singh

There are no specific debt funds with a 20-year horizon, though you can invest in any open-ended debt fund and remain invested for the next 20 years. You can also employ the very handy option of monthly investments in child plans through the SIP route.

By Niranjan Risbood

The writer is director, manager research, Morningstar India

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