Invest In Tax Saving Mutual Funds Online
Understanding taxation among debt funds and Bank deposits is very important as it becomes one of the parameter of selection among these.
| Tax rates FY 2011-2012 | ||||||
| Description | Debt Funds | Bank deposits | ||||
| Profit booked within One year of Investment | As per Income Tax slabs | As per Income Tax slabs | ||||
| Profit booked after one year of Investment | 10% without Indexation or 20% with Indexation | As per Income Tax slabs | ||||
| Whichever is lower | ||||||
| Dividend Received | No Tax | NA | ||||
| Dividend distribution Tax | ||||||
| Liquid Schemes | 25%+5%(surcharge)+3% (cess)=27.038% | NA | ||||
| Debt schemes other than Liquid | 12.5%+5%(Surcharge)+3% (cess) = 13.519% | NA | ||||
* in finance bill 2013-14 , Finance minister has increased the dividend distribution tax in Debt schemes other than liquid and thus are now at par with Liquid schemes which is 27.038%
Let's take an example to understand it better.
Mohan has 2 options in front of him.Either to invest Rs 1000000/- in 370 days FMP with indicative yield of 9.5% p.a or to select Bank fixed deposits with rate of 9.5% ( compounded quarterly).
| Particulars | FMP (Retail Growth Option) 370 days | FMP (Retail Growth Option) 370 days | Bank Fixed deposit | |||||
| Without Indexation | With Indexation | |||||||
| Amount invested (Rs.) | 1000000.00 | 1000000.00 | 1000000.00 | |||||
| Assumed rate of return / interest (%)^ | 9.50% | 9.50% | 9.50% | |||||
| Return / interest for first 12 months (Rs.) | 95000.00 | 95000.00 | 98438.00 | |||||
| Return / interest for remaining 5 days (Rs.) | 1301.37 | 1301.37 | 1348.47 | |||||
| Total return / interest for the period (Rs.) | 96301.37 | 96301.37 | 99786.47 | |||||
| Maturity proceeds (Rs.) | 1096301.37 | 1096301.37 | 1099786.47 | |||||
| Indexation Benefit | Not availed | Yes | No | |||||
| Indexed Cost of Investments (assuming 7% rate of Inflation Index) | Not availed | 1070000.00 | NA | |||||
| Applicable tax rate assuming highest tax bracket + 10% Surcharge + 3% Education Cess | 11.33% | 22.66% | 33.99% | |||||
| Tax liability (Rs.) | 10910.95 | 5959.89 | 33917.42 | |||||
| Receipts net of tax (Rs.) | 1085390.42 | 1090341.48 | 1065869.05 | |||||
| Post-tax return for investment period of 370 days (p.a.) | 8.42% | 8.91% | 6.50% | |||||
The above calculation clearly shows that even if a person comes in lowest tax slab, then also FMP can provide better tax efficient returns after indexation.(if at all inflation is on his side). Moreover when we know that when interest rates are falling, open ended debt funds have potential to deliver better returns
Even when the requirement is to park money less than one year, then also the short term funds and ultra-short term funds prove to be very tax efficient due to less dividend distribution tax.
Happy Investing!!
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Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online
Tax Saving Mutual Funds Online
These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs
Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
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