tax planning manager
Tax Planning With Mutual Fund Investments
By nature Mutual Funds are not tax saving instruments but some mutual fund investment products also offers tax saving plans. Generally income that is earned from Mutual funds is categorized under two heads dividend and capital gains. Given that the tax implications can have a significant impact on the return earned it is necessary to understand the tax for both these heads of income. Income earned through dividends is tax free in the hands of the investor. The tax on most occasions is actually paid by the Mutual Fund Company itself. Investors who fall in the highest tax bracket should opt for the dividend option in mutual fund schemes. Capital gains from mutual funds are of two types – short term (1-3year) and long term (more than 5 years). This classification is based upon the period of holding. If the investment is sold within a year 15 days from the date of purchase, any capital gain made would be treated as a short term nature. Hence the tax deducted will be normal. If the mutual fund investment is sold after a year from the date of purchase, any capital gain made during that period will be treated as a long-term capital gain. Here the tax that would be deducted will depend on how long the investment is kept after a year prior to getting it sold. The longer the fund is kept the lesser the tax to be paid.
A Good Fund that could be used to invest upon is the equity linked saving schemes fund (ELSS). They are strong favorites for investing as they provide tax concessions on investments and are also exempt from long term capital gains tax. Apart from ELSS schemes, diversified equity schemes are a good investment considering that capital gains in equity funds below one year are taxed at a rate of 10% and over a year are tax-free. This option can be best exercised using Growth Funds. The primary objective of Growth Funds is to provide investors long-term growth of the capital invested. Dividend paid in Dividend Plans is tax free, and no distribution tax is deducted. However, every time we buy or sell equity shares a Securities Transaction Tax, STT, of 0.25% is paid and further when you redeem your investment, again STT is deducted from your redemption price.
Tax Planning & saving options requires a through study of the market conditions, especially if you are trying to do it in a period of slump. Proper Asset Allocation, research and the advice of the Fund Manager will definitely help. Long term capital loss can be set off only against long term capital gains. Short term capital can be set off against any capital gains, whether short term or long term.
About the Author
Investment and Financial Planner for a leading Mutual Fund House in India. To read more about tax planning with Mutual Funds click here.
Should I change my career?
In May 2009, I will graduate with a BS in Accounting.
I have always wanted to be a hair stylist, but was discouraged. I don’t really enjoy accounting-except for tax and financial planning. Also, my GPA has taken a hit bc I stayed in school during my pregnancy and while my daugther was very young.
I am seriously considering going to beauty school to become a hair stylist. I want to have my own business someday. I am 31. Is it true that customers do not want an older person to style their hair? Should I stick with accounting or should I pursue a career in the arts where I may settle into a job as salon manager etc….
I have been in your shoes. I had my son while I was finishing elementary education B.A. And it was there that I saw that I was much happier working as a ECE educator. I regret the fours years and the expensive semesters I spent at University.
If styling is your passion, I think you ought to do it, but considering that you so very close to completing your school, maybe you should finish it and take some styling classes at the weekend, to get your feet wet.Accounting could be an asset, if you should ever want to own your own beauty salon. Plus working for a few years as an accountant, could save loads of money to buy your business.
At 31, you are hardly considered “a old stylist”. To be honest with you, the really young ones (the ones that look barely legal) with like piercings and blue and purple streaks in their hair kind of scare me off! I am almost 28! I wouldn’t trust them with my hair!
Whatever your decisions are, don’t make them only on what you are feeling now. Your GPA took a hit, not because you aren’t good at accounting, but you had a lot on your plate, and I am sure that you can get back on track these next two semesters.
Good luck 
Tax Sr Manager up to VP
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