Want to invest in G-secs? Invest in gilt funds of mutual funds

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November 4, 2020 1:30 AM

To gain from a favourable tax treatment, investments in debt mutual funds should be at least over three year holding periods.

For holding periods of over three years, the ‘long-term gains’ are taxed at 20.8% (including cess) post indexation of costs.For holding periods of over three years, the ‘long-term gains’ are taxed at 20.8% (including cess) post indexation of costs.

How can I invest in government securities through mutual funds and what should be the holding period?
—M P Ramachandran
Under the mutual fund route, investors can invest in government securities (G-secs) by investing in funds belonging to the ‘Gilt funds’ category. Investors also have the option to invest in 10-year G-secs by opting for ‘Gilt funds with 10 year constant duration’ category, for those who want to invest in securities with a residual maturity around 10 years to gain from higher yields at the longer-end of the curve.

To gain from a favourable tax treatment, investments in debt mutual funds should be at least over three year holding periods. For gains in the holding period of up to three years, the gains are added to income and taxed at the marginal tax rate. For holding periods of over three years, the gains are taxed at 20.8% (including cess) post indexation of costs.

How is income tax from gold ETFs and gold fund-of-funds calculated and is there any indexation done?
—Charanjit Datt
Both gold ETFs and gold fund of funds are taxed in a manner similar to that of physical gold. In case of gains for holding period of up to three years, the ‘short-term gains’ are added to income and hence taxed at the marginal tax rate. For holding periods of over three years, the ‘long-term gains’ are taxed at 20.8% (including cess) post indexation of costs.

If I do not continue my SIP for some time, will my corpus value come down from the current level?
—Akash Singh
No, stopping SIP contributions does not lower the present corpus amount of your mutual fund. AMCs do not charge a penalty for missing any SIP contribution, although some require a minimum number of SIPs to be fulfilled. However, corpus amount at the end of your invest-ment horizon would reduce by the future value of these missed contributions, assuming no changes in future amount and time of SIP contributions, expected return and residual time horizon. Some banks charge a penalty to investors for not ensuring sufficient funds to honour the auto-debit mandate. To avoid this, either pause your SIP for the desired period, or cancel the auto-debit mandate pertaining to the SIP.

The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to fepersonalfinance@expressindia.com

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