For holding periods of more than one year in equity mutual funds, long-term capital gains tax at 10% (excluding cess) is applicable on gains exceeding Rs. 1 lakh in a financial year.
Do I have to pay long-term capital gains tax on redeeming units from equity mutual funds for over Rs. 1 lakh? —Suraj Kumar
Capital gains tax rate depends on the holding period for the investment. For holding periods of more than one year in equity mutual funds, long-term capital gains tax at 10% (excluding cess) is applicable on gains exceeding Rs. 1 lakh in a financial year. For holding periods up to one year, short-term capital gains are taxed at 15% (excluding cess).
Me and my friend had started to invest in an SIP in the same fund around the same time. Why is it that the returns are differing? —Atul Acharya
SIP returns, as evaluated on a given date, are a function of the cash flows and the associated cash flow dates. Two investors investing a fixed SIP amount on the same dates, irrespective of the amount invested, would have the same SIP returns as evaluated on any particular date. The returns could differ only if the SIP dates pertaining to the fixed SIP installments differ, as the prevailing NAV at which the installment gets invested at would differ. This can be observed particularly in equity-oriented funds as they are more volatile and a difference in installment dates can lead to a notable divergence in returns.
How returns are calculated in mutual funds and redemption works? —S R Prasad
SIP returns are computed using the XIRR formula in excel which takes the underling cash flows and associated cash flow dates as input. For a lumpsum investment, returns are computed using below formulae. For holding periods up to one year:
Return (in %) = (Current Market Value / Initial investment -1)
For holding periods more than 1 year:
Annualised Return (in %) = (Current Market Value / Initial investment) ^ (1/holding period in years) -1
You may withdraw a part of your investment via the systematic withdrawal plan route by redeeming a fixed amount at a given frequency. You can also withdraw a lumpsum amount via a redemption request. Redemption proceeds are credited to your account on a T+3 days basis for equity funds, on a T+ 1 basis for liquid and money market funds and on a T+2 basis for other debt funds. For increasing the SIP amount, you would need to start another SIP in the same fund.
(The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to firstname.lastname@example.org)