Question: How Are Debt Funds Taxed?

Why debt funds are better than FD?

Liquidity: Debt funds are more liquid than fixed deposits since they can be redeemed at any point.

Fixed deposits are less liquid.

You can make premature withdrawals, but you may get a lower interest rate on the withdrawn amount.

Interest rate risk: An important difference between the two is interest rate risk..

Which mutual fund is tax free?

Equity-linked savings schemes (ELSS) are diversified equity mutual funds with two differentiating features – one, investment amount in them qualifies for tax benefit under Section 80C of the Income Tax Act, 1961, up to a limit of Rs 1.5 lakh a year and secondly, the amount invested has a lock-in period of 3 years.

Is Ltcg applicable on debt funds?

Long term capital gains of over Rs 1 lakh in a financial year are taxed at 10 per cent. If debt investments are sold after three years, the returns are treated as long-term capital gains and taxed at 20 per cent with indexation benefit. … Mutual fund investors need not pay any tax on dividends declared by their schemes.

Is Liquid Fund better than FD?

Liquid fund investors are considered to be in a better position than fixed deposit holders in case of taxation on their respective investments. When it comes to tax on liquid funds, the investors are entitled to avail tax indexation, which directly helps them to lower their burden of tax-related expenses.

How much tax do you pay on mutual fund withdrawals?

The short-term capital gains (STCG) on redemption of equity fund units is taxable at the rate of 15%. The long-term capital gains (LTCG) on equity fund up to Rs 1 lakh is tax-free. However, LTCG on equity fund redemption in excess of Rs 1 lakh is taxable at the rate of 10% without the benefit of indexation.

Which is better FD or MF?

A Fixed Deposit offers pre-decided returns which do not change throughout the tenure of investments whereas Mutual Funds offer better returns on long-term investments as they are market-linked. Longer the tenure of investment, better the returns from Mutual Funds.

Is there any risk in debt funds?

Investing in debt funds carries various types of risk. These risks include Credit risk, Interest rate risk, Inflation risk, reinvestment risk etc. But the key risks which needs be considered before investing in Debt funds are Credit Risk and Interest Rate Risk; Credit Risk (Default Risk):

How liquid funds are taxed?

If the liquid fund investment is held for more than three years, it is subject to long term capital gains which is taxable at 20% with indexation. If the investment is held for three years or less than that, the capital gain is taxed at the marginal (highest) tax slab rate applicable to the assessee.

How do you calculate long term capital gains on debt mutual funds?

Step 3: From your redemption value, minus the initial investment to ascertain the amount of gain. If it is short-term capital gain, your tax is calculated as per the income tax rate applicable to you. If it is long-term capital gain, the tax rate is 20 per cent with cost indexation.

Why did liquid funds give negative returns?

“The spike in bond yields has led to investors making negative returns in safe categories like liquid funds over the last one week,” says the chief investment officer at a domestic fund house. The fall in value has not gone well with treasury heads at corporate houses, which have started withdrawing more money.

Is liquid funds safe now?

Although liquid funds are not entirely risk-free, however, they are low risk-low returns instruments. As they invest predominantly in debt instruments, they are subject to interest rate risk and credit risk. A change in the prevailing interest rates may cause a difference in the price of the debt instruments.

Which debt fund gives highest return?

Top 10 Debt Mutual FundsFund NameCategory1Y ReturnsKotak Dynamic Bond FundDebt11.6%Kotak Corporate Bond FundDebt9.7%Axis Banking & PSU Debt FundDebt10.3%Franklin India Savings FundDebt7.1%12 more rows

What is average maturity in debt fund?

For e.g. a debt fund having an average maturity of 5 years constitutes debt securities held by the fund that, on an average, will mature in 5 years, though individual securities may have maturity different than 5 years.

How equity mutual funds are taxed?

If you sell your equity mutual funds before a year, the gains are treated as short-term capital gains and taxed at 15 per cent. … This means, if you are in the higher tax bracket, you will end up paying 30 per cent tax on your short-term capital gains on your debt mutual fund investments.

Can liquid funds give negative returns?

On an average, liquid funds have delivered 0% over the past week, according to data from Value Research and many large liquid funds have actually delivered negative returns. Ultra Short Duration Funds have given -0.48%, money market funds have given -0.51% and low duration funds have delivered -0.91%.

Are debt mutual funds tax free?

Long term capital gains upto Rs 1 Lakh is totally tax free. … Tax on debt mutual funds – The minimum holding period for short term capital gains in debt funds is 3 years. Short term capital gains (if the units are sold before three years) in debt mutual funds are taxed as per applicable tax rate of the investor.

Are returns from debt funds taxable?

You are required to add short-term gains from debt funds to your overall income. They are subject to short-term capital gains tax (SCGT) and is taxable as per the income tax slab you fall under.

Can I lose money in liquid funds?

Since a liquid fund invests only in short term securities, it’s market value does not respond much when interest rates change in the market. This means that liquid funds do not have significant capital gains or losses.