Prajna Capital

Mutual Funds: Taxation on Monthly Income Plans (MIPs)
Mutual Funds: Growth and Dividend
Reading a Mutual Fund Account Statement

Mutual Funds: Taxation on Monthly Income Plans (MIPs)

Posted: 03 Nov 2011 05:08 AM PDT

A monthly income plan is a debt oriented mutual fund which regularly pays out dividends to create an income stream. These are taxed the way debt funds are taxed. So, any profit before a year would be short term capital gains and will be added to your income and taxed at your income tax slab rate.

Any profit you get after one year in the MIP will be taxed at 10 per cent without indexation or 20 per cent with indexation, whichever is lower. And all the dividends received from the MIP will be tax-free in your hands; however the AMC pays out dividend distribution tax.

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Mutual Funds: Growth and Dividend

Posted: 03 Nov 2011 12:05 AM PDT

Mutual fund houses offer two kinds of schemes: Growth and dividend. In the growth option, profits made by the scheme are invested back into it. This results in the net asset value (NAV) of the scheme rising over time. When the scheme gains, the NAV rises and in case of a loss, it goes down. The only option to realise the profit in the growth option is to sell or redeem your investments. The dividend option does not re-invest the profits made by the fund. Profits or dividends are distributed to the investor from time to time. The amount and frequency of dividends is never guaranteed. Dividends are declared only when the scheme makes a profit and it is at the discretion of the fund manager. The dividend is paid from the NAV of the unit.

Which option is more beneficial?

Your returns from both options are almost the same. But in the dividend payout you lose, on compounding returns as the dividend you receive is not re-invested either by the scheme or the investor. Unlike the dividend option, the growth option reinvests the gains over and over again and the returns are compounded, resulting in higher proceed, at the time of maturity. The dividend option works best when valuations of the market seem high. When markets are at a high, the likelihood of the fund house declaring a dividend is higher, as making profits on investments becomes easier. In case you need some funds, the dividend option will work for you. This is because the periodic distribution of dividend is like booking profits.

Who should go for what?

Those who want to create wealth or have a goal to fulfil over a longer period of time should choose the growth option. Typically, those with regular income flow are advised to invest in the growth option. Those looking for a regular income such as retirees, should pitch for the dividend option.

How are they taxed?

There is no long-term capital gains tax on equity-oriented mutual fund schemes. The short-term capital gains tax is 15 per cent. If you stay invested in a growth scheme for more than a year, your investment will be tax-free. For those opting for a dividend option, the dividend declared by mutual funds would be tax-free at the hands of the unit holders. Dividend distribution tax is paid by the fund house at 14 per cent.

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Also, know how to buy mutual funds online:

Invest in DSP BlackRock Mutual Funds Online

Invest in Reliance Mutual Funds Online

Invest in HDFC Mutual Funds Online

Invest in Sundaram Mutual Funds Online

Invest in Birla Sunlife Mutual Funds Online

Invest in IDFC Mutual Funds Online

Invest in UTI Mutual Funds Online

Invest in SBI Mutual Funds Online

Invest in L&T Mutual Funds Online

Invest in Edelweiss Mutual Funds Online

Reading a Mutual Fund Account Statement

Posted: 02 Nov 2011 08:00 PM PDT

If you have invested in a mutual fund scheme, the fund house has to send you a statement with details of your investment. You can opt for a physical copy of the statement or a soft copy, which is emailed to you and which you can access online. This statement is sent to you within three working days of the transaction. Here are some important things you need to check in your statement.

Personal Details And Bank Details:

Your name, address, e-mail ID and contact numbers of the investor or joint investors, if any, are mentioned in this section. Check if the name of your bank and account number is mentioned correctly, else you might face hassles when you redeem your mutual fund units. In case you need to change your bank mandate, fill up the slip provided at the bottom of the account statement and submit it to the fund house.

Folio and Account Numbers:

Each time you invest in a mutual fund, the fund house gives you an account number. You could also invest in a number of schemes, such as a debt fund, an equity fund or a tax plan, with the same fund house. In this case, it would be wise to mention your account number so that the fund house can consolidate all accounts under a single folio. This makes it easier to track all the investments with a particular fund house.

Current Cost and Value:

The current value is the latest market value of the investments on the date the statement is generated, while the current cost indicates the amount invested in the scheme. The number of units allotted is calculated using the amount invested divided by the NAV of the scheme as on the date of allotment. In case there is an exit load, it would be deducted from the NAV and the proceeds paid out to the investor.

Advisor's Name and Pan Details:

If you have invested through an agent, his/her name and code will appear on the statement. However, if you have invested directly, these columns should be blank in your account statement. It is mandatory for you to provide your Permanent Account Number (PAN) irrespective of the amount you have invested. Check that the PAN mentioned in the account statement is correct.

Transactions Summary:

This section mentions the types of transactions you have opted for, which might include purchase, systematic investment plan (SIP) or systematic withdrawal plan (SWP). Other transactions like the dividend paid out or reinvestments are also mentioned along with the percentage or rupees per unit at which the dividend is reinvested or paid out.