Mutual Funds and ELSS Funds
Posted: Jun 24, 2019
A Mutual Fund pools together a certain amount of money that is collected from different investors and the collected funds are then used to buy or invest in assets like stocks and bonds. Professionals manage such funds and their sole job used to try and incur profits using the pool of money. The money collected in the form of the fund is often used to buy further assets. Its value will then be calculated by how much money the new securities are supposed to yield. Now, since investing and profiting from mutual funds is a source of income, there is a tax on mutual funds.
- But how do these taxes work?
Taxes on mutual funds depend on what kind of mutual fund it is. As specified by income tax rules, if sixty-five percent of the assets under management are in equities, then it is an equity fund. If not, it becomes a debt fund, the difference between them being that, in an equity fund, people invest money to own a corporation while, in a debt fund, people lend out money to the corporation. You can choose between either depending on your financial goals.
- What is ELSS fund?
Equity Linked Savings Scheme, or the ELSS, is kind of a mutual fund that is exempt from taxation by the Government of India. The Equity Linked Savings Scheme is a close-ended diversified scheme. It comes with a three-year lock-in period. This basically means that the shareholder or investor cannot redeem their units before the said period of three years have completely expired. After the expiration of three years, the person can redeem their shares along with the dividends incurred during this period of time.
The ELSS scheme is one of the most efficient tax saving schemes as the income from the scheme is exempt from tax under Section 80C of the Constitution of India (Income Tax Act 1961). However, it comes with one condition and, that is, that the exemption from taxes can only apply if your income is one and a half lakhs or below. In case it crosses that mark, the dividend will be taxable at a rate of ten percent without indexation (reduction of tax liability).
The ELSS scheme has better liquidity than other schemes. You can even hold on to your ELSS scheme for as long as you may possibly want to. It is like a simple equity fund and should give you good profits through the entirety of the holding period.
- What is the Net Asset Value of Mutual Fund?
The Net Asset Value of Mutual Fund is actually the market value of per unit of the fund. It is calculated by dividing the entirety of the market value of all units by the number of current units. This show what the current net asset value is. This is also the price at which the investors buy these shares and sell them to another corporation. Net Asset value differs from Market Price because factors like supply-demand and the company’s potential affect the share price on a regular basis.
The Equity Linked Savings Scheme is a close-ended diversified scheme. It comes with a three-year lock-in period. The ELSS scheme is one of the most efficient tax saving schemes as the income from the scheme is exempt from tax under Section 80C of the Constitution of India (Income Tax Act 1961). Visit Mutual Funds Sahi Hai for more information
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