Dynamic Equity Funds Tax Advantages

Best SIP Funds Online

What is the tax treatment of dynamic equity funds?

A big advantage of these funds is that they are structured in such a way that they are taxed as equity funds for investors. Most funds, when they lower their exposure to equities, ensure that equity plus arbitrage component of the scheme is at least 65% of the corpus, which helps it qualify for equity taxation. When the fund qualifies for equity taxation, investors who hold the fund for one year need to pay zero long-term capital gains tax, making the investments tax free.

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Reliance Tax Saver Fund

Reliance Tax Saver scheme aims to generate long-term capital appreciation from a portfolio that is invested predominantly in equity and equity related instruments.

Reliance Tax Saver Fund is A category topper which has consistently beaten its benchmark and category over three, five, seven and ten years, this fund has managed a climb from three- to four-star ratings in the past year.

Though most funds in the ELSS category follow a multi-cap approach, this fund specifically favours mid- and small-cap stocks. The mandate allows a 40-60 per cent allocation to large caps, but in practice, in the last couple of years, the large-cap exposure has hovered at 25 to 45 per cent, with mid caps taking up a 40 per cent plus weight and small caps occupying 15-20 per cent. In the last six months though, the fund has upped its large-cap weights to nearly half its portfolio, probably due to richly priced mid and small caps. The fund sets aside 20-30 per cent of the portfolio for multinational companies with robust fundamentals. It follows a blend of growth and value investing.

Reliance Tax Saver fund’s three, five and even seven-year returns are ahead of the benchmark by 7-18 percentage points. In 2015, the fund managed a shift to domestic-recovery plays. This timely move has helped it stay ahead of the race in the last one year. Overall, the Reliance Tax Saver fund has fared better in tear-away bull markets than in bearish markets.

Reliance Tax Saver Fund is an aggressive fund in the ELSS space, but one that has made timely shifts to keep up with the market’s changing preferences.

Invest Reliance Tax Saver Fund Online

Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds

Top 10 Tax Saver Mutual Funds for 2018

Best 10 ELSS Mutual Funds to invest in India for 2018

1. DSP BlackRock Tax Saver Fund

2. Invesco India Tax Plan

3. Tata India Tax Savings Fund

4. ICICI Prudential Long Term Equity Fund

5. Birla Sun Life Tax Relief 96

6. Franklin India TaxShield

7. Reliance Tax Saver (ELSS) Fund

8. BNP Paribas Long Term Equity Fund

9. Axis Tax Saver Fund

10. Birla Sun Life Tax Plan

Invest in Best Performing 2018 Tax Saver Mutual Funds Online

Invest Best Tax Saver Mutual Funds Online

Download Top Tax Saver Mutual Funds Application Forms

For further information contact SaveTaxGetRich on 94 8300 8300


Although TATA INDIA TAX SAVINGS tax-saving fund outperformance had been inconsistent, it has put a strong showing in the past few years. A market-cap and sector-agnostic fund, it adopts a balanced approach to portfolio allocation. However, its bets in the mid and small-cap space seem to be on the higher side when compared to peers. The fund manager prefers growth-oriented businesses with high capital efficiency.

He builds the portfolio with a basket approach–picking multiple businesses, across sizes, within each chosen sector. This results in a slightly bulky portfolio. While the manager is not averse to investing heavily on his bets, he prefers to avoid significant concentration in the portfolio.

A few more years of consistent outperformance should make this a worthy pick in this segment.




Short Term Income Funds vs Dynamic Bond Funds

There are various catagories of debt funds available for investors, such as: short-term income funds, credit opportunities funds, corporate bond funds, income funds, gilt funds and dynamic bond funds.

While some of these clearly have a higher risk threshold, which makes them unsuitable for your stable-return allocation, investors do have the choice of looking at short-term income funds or dynamic bond funds for their short to medium term allocation.


If you focus just on the returns, which may not always be a smart thing to do, then dynamic funds score over short-term bond funds. As dynamic funds can invest in longer-term securities, they outperform short-term funds on many occasions. Short-term income funds invest in bonds with a maturity of 1-3 years and currently give 9-10% annualized returns. Dynamic bond fund returns have historically shown a wider range and for the past 1 year, returns have ranged between 7% and 13%.

Interest rate risk
Short-term income funds are designed to generate income from interest on short to medium term bonds. This accumulated interest, referred to as accrual income, adds up in the net asset value. Steady income makes returns less volatile. Dynamic bond funds are not restricted to any type of investment or security. They can earn accrual income or capital gains from an active duration strategy. But this type of strategy adds to interest rate risk. Funds with high duration can have volatile returns in the short term.

Investment horizon
Short-term funds don’t invest in very long maturity bonds since they try to deliver steady returns in the 1-3 year period. Dynamic bond funds try to take advantage of any interest rate or corporate bond opportunity. They can have portfolios of very short maturity securities or very long maturity securities or a mix. For stable returns in a 1-3 year period, it makes sense to match your investment timeline with the fund’s average maturity. Unless you are market savvy, it’s difficult to do this with a dynamic bond fund.

Active management
In short-term income funds aim for steady returns. A portion of the portfolio may take more timely positions in bonds but that allocation would not be significant. In dynamic bonds, fund managers actively manage the interest rate risk by buying and selling long-maturity securities several times. Hence, you have to rely on the manager’s ability to identify high-quality bonds and also on her ability to visualise the interest rate trend accurately. Thus, the risk of active management is higher in dynamic funds.

NRI from Canada and US Invest in Mutual Funds in India

Investing in Indian mutual funds by NRIs from US and Canada

As of December 2016, eight Indian fund houses were accepting investments from US/Canada-based NRIs

Most of the Indian mutual fund houses have stopped accepting funds from US and Canada based NRIs due to regulatory restrictions. This is because the Foreign Account Tax Compliance Act (FATCA) makes it compulsory for all financial institutions in the world to report comprehensive details of all transactions involving US/Canada residents, (including non-resident Indians) to the US & Canada Government.

Dividend Distribution Tax

In India, domestic companies pay Dividend Distribution Tax, or DDT, which is a levy in addition to income tax chargeable on their total income in an assessment year.

1. What is a dividend?

A dividend is a return given by a company to its shareholders out of profits made by it during a particular year. They are usually given in proportion to the number of shares owned.

2. What is Dividend Distribution Tax?

In India, a company which has declared, distributed or paid any amount as dividend is required to pay a dividend distribution tax at 15%. The provisions of DDT were introduced by the Finance Act 1997.Only a domestic company is liable for the tax. Domestic companies have to pay the tax even if the company is not liable to pay any tax on its income. It is applicable whether it is paid out of current or accumulated profits. The amount of dividend paid by a company will be reduced by the amount of dividend received from domestic subsidiaries, if those subsidiaries have paid DDT. The tax will be paid by parent company on the income for the subsidiary , if that subsidiary is a foreign company .

3. What does grossing up of dividend distribution tax mean?

While announcing Finance Act 2014, the government had made changes in the way in which the dividend distribution tax is levied. Earlier, it was computed based on net amount paid as dividend instead of the gross amount. As a result, the effective rate of tax was lower than 15%. The Section 115-O was amended, and after that the dividends have to be grossed up, effectively increasing the amount to be paid as dividend distribution tax.

4. What is effective tax rate for dividend distribution?

Once surcharge and cess are added to the grossed up amount, the effective tax rate comes up to about 20%.

5. When do companies have to pay it?

A company has to pay tax on the distributed profits to the government within 14 days of declaration, distribution or payment of any dividend, whichever is earliest. If a company has not paid it within that time frame, an interest will be accumulated at 1% per month or part thereof till it is paid.

6. What are the recent changes that have been made to tax on dividend?

In the Budget for financial year 2016-17, the government said that income by way of dividend in excess of Rs 10 lakh would be chargeable at the rate of 10% for individuals, Hindu Undivided Family or partnership firms. In the 2017-18 Budget earlier this month, the government extended the rule to include private trusts.

How dividends for a MF declared

How fund houses declare the dividend for a scheme

Many mutual funds declare dividends at various times. Why

Although mutual funds across all asset classes declare dividends, they are never assured. Also, the capital market regulator, Securities and Exchange Board of India (Sebi) rules state that fund houses must declare dividends out of realisable surpluses, and not just paper profits. In simpler words, if your scheme’s net asset value goes up from Rs12 to Rs12.50 purely because the share prices of some of its underlying companies went up, the fund cannot declare a dividend. Your scheme should have actually sold those shares at a profit to be able to declare dividends.

Time limits
In the earlier days, fund houses used to announce upcoming dividends and then pay them much later. A lot of investors used to take this cue, invest, pocket dividends and then immediately redeem their investments after their NAVs fell-after dividends are distributed, NAVs fall. Such a move would lead to investors suffering a capital loss, which they used to then offset against other capital gains and lower their overall tax outgo.

Union Budget of 2004 plugged this loophole and said that anyone who buys mutual fund units within 3 months before the record date, or sells them within 9 months after the record date, cannot claim the capital loss that arises out of NAV reduction caused by dividend declaration.

In 2006, Sebi ruled that the record date should be 5 days after the day on which the announcement declaring dividend is made so that not much time is given to those who invest in mutual funds just to pocket a loss. So, if your fund declared dividend on 1 March, then the record date of dividend should be 6 March. Record date is the date on which a fund house determines who are the investors. Also, once a fund house’s trustees approve the dividend declaration, it has to announce it within one calendar day.

Way of the dividend
There are components of a scheme’s NAV: the face value (Rs 10, typically), the dividend equalization reserve (DER) and unit premium reserve (UPR). Say, the NAV goes up from Rs 10 to Rs 15 but the scheme cannot pay entire Rs 5 as dividends, it has to sell shares and book profits. Say, it books Rs2 as profit. This goes to the DER and the balance (Rs 3) goes into the UPR.

Here’s what is interesting. Out of the Rs2 that goes into DER, the scheme may not necessarily distribute everything. It could save some for a rainy day. Like when markets are on a continuous fall and it could not book any profits. It can then dip into the existing DER profits, which were previously booked but yet not distributed, and then distribute that. That’s why old (about 20 years or even older) and large-sized equity schemes declare dividends at regular frequency, to give their investors some kind of comfort or expectation as to when a dividend might come their way.

What you should do
Once your fund house sends you a dividend receipt (provided your email ID is on its records), check your bank statement to see if you have got the credit. Also, your fund house will send you a monthly common account statement in the month after the one when your dividend was declared.

Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds

Top 10 Tax Saver Mutual Funds for 2017 – 2018

Best 10 ELSS Mutual Funds to invest in India for 2017

1. DSP BlackRock Tax Saver Fund

2. Invesco India Tax Plan

3. Tata India Tax Savings Fund

4. ICICI Prudential Long Term Equity Fund

5. Birla Sun Life Tax Relief 96

6. Franklin India TaxShield

7. Reliance Tax Saver (ELSS) Fund

8. BNP Paribas Long Term Equity Fund

9. Axis Tax Saver Fund

10. Birla Sun Life Tax Plan

Invest in Best Performing 2017 Tax Saver Mutual Funds Online

Invest Best Tax Saver Mutual Funds Online

Download Top Tax Saver Mutual Funds Application Forms

For further information contact SaveTaxGetRich on 94 8300 8300


Investing ELSS Funds Online to Save Tax

Equity Linked Savings Schemes (ELSS) are a special category of equity mutual fund.

Investments in these funds are allowed by the government for tax saving purpose under section 80C of the Income Tax Act.

To continue to enjoy this special status these schemes have to invest at least 65% of the corpus in stocks. To claim tax benefits investors in ELSS need to stay invested for at least three years. Financial planners say that the motivation to invest in ELSS should be to grow wealth while tax saving should come after that.


Invesco India Tax Plan

Invesco India Tax Plan scheme aims to generate long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities. It intends to invest across market capitalisation sectors utilizing bottom up approach. It will aim to have concentrated well researched portfolio, which would be around 20 – 50 stocks.

Invesco India Tax Plan that has managed to beat its benchmark in seven out of the eight years since launch, it has retained a four-star rating almost all its life. Designed to own some of the house’s best large-cap and mid-cap ideas, the fund prefers quality businesses with healthy growth. But it is careful about not going overboard on valuations. It does not take tactical cash or sector calls. After remaining overweight on mid caps until late 2015, the fund has shifted gears in the last one year. Its large-cap allocations have been raised from 60 to 70 per cent in the past one year, with mid-cap weights trimmed from nearly 40 to 25 per cent. This should hold the fund in good stead should the stiffly priced mid caps correct in the market.

The year-to-year returns of this fund show it to be equally good at navigating both bull and bear markets. It managed to contain downside to levels much lower than its benchmark during 2008 and 2011 and has outpaced it by big margins both in 2010 and 2014. The last one year has seen the fund outpace its benchmark, but it slightly lagged behind its category. This could be due to its higher large-cap tilt in a category that is largely multi-cap-focused.

This fund is a good choice for investors who are looking for a conservative approach to tax planning.

Adjust Short Term Capital Loss from Debt Mutual Funds

You can set off your short term capital loss from equity mutual funds with your short term capital gains from debt mutual funds

Yes, you can set off your short term capital loss from equity mutual funds with your short term capital gain of debt mutual fund.

Short term capital loss arising out of both equity and debt mutual fund can to be set off against short term capital gain of equity or debt mutual fund. It can also be set off with long term capital gain of debt mutual fund. In your case, you would need to only add the difference of gain R11000 (R153000-142000) to your taxable income.

Debt funds held for less than three years will attract short term capital gains tax as per your income tax slab. Debt funds held for more than three years will qualify for long term capital gain tax of 20 percent with indexation. Equity funds held for less than 1 year will attract short term capital gains tax which is 15 percent. Long term gains from equity funds are exempt from tax.