Mutual funds pool together money from many investors. The collected funds can then be used to purchase or invest in assets such as stocks and bonds. These funds are managed by professionals, and the sole purpose of their management is to make profits from the money pool. The fund’s money is often used for the purchase of additional assets. The new securities will determine the fund’s value. Since mutual funds are a source income and can be used to invest or profit, there is a tax.
- How do these taxes work?
The tax rates on mutual funds vary depending on the type of mutual fund. Income tax rules state that if 60% of assets under management is in equity, it is an stock fund. It becomes a loan fund . If it does not, it will be considered an equity fund . The difference is that in an equity fund people invest money in order to own corporations, while in a debt fund people lend money to the corporation. Depending on your financial goals, you can choose one of the two.
- What’s an ELSS fund?
Equity Linked Savings Scheme is a type of mutual fund that is exempted from taxation by India’s Government. The Equity Linked Savings Scheme (ELSS) is a diversified, close-ended scheme. The lock-in period is three years. This means that investors or shareholders cannot redeem their units prior to the three-year lock-in period. The person can redeem their shares and any dividends earned during the three-year period.
The ELSS Scheme is one of the most efficient tax-saving schemes because the income earned from the scheme is exempted from tax under Section 1980C of the Constitution of India (Income Tax Act 1960). The exemption from taxes is only available if your income exceeds one and a quarter lakhs. If the income exceeds that threshold, the dividend will be subject to tax at 10% without indexation (reduction in tax liability).
The ELSS scheme offers better liquidity than other schemes. Your ELSS plan can be kept for as long as possible. It works like an equity fund and will give you good profits for the entire holding period.
- What’s the Net Asset Value for Mutual Funds?
The net asset value of Mutual Fund represents the actual market value per unit. This is done by multiplying the entire market value of all units with the current number. This is the current net asset value. This price is the price at which investors purchase these shares and then sell them to another company. Because of factors such as supply-demand and company potential, Net Asset Value differs from the Market Price.