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Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. and its affiliates, information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information. , its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.
The best time to start investing is today You are different and so are your needs Why your returns are not the same as the market’s return? Understanding Taxation in Mutual Fund Investments
AMFI stands for Association of Mutual Funds in India. AMFI India is an association of SEBI registered Mutual Funds. It was incorporated on August 22, 1995, as a non-profit organization. AMFI was set up to maintain overall standards in the Mutual Fund industry.

AMFI is entrusted to maintain and define the ethical and professional standard in all operational areas of the industry. AMFI recommends the code of conduct and best practices for all its members.This includes all agencies, distributors, AMC’s etc that are engaged in activities of Mutual Funds. AMFI also makes representation to SEBI, the Government, RBI and other bodies on matters related to the Mutual Fund industry. It also undertakes the activity of getting a training and certification program in place for all intermediaries (Mutual Fund Distributors etc) engaged in the Mutual Fund industry.

AMFI strives for ethical and uniform professional standards in the Mutual Fund industry. It encourages members and investors to maintain ethical business practices and regulations. AMFI guidelines are followed by AMCs, agents, distributors, advisories and other bodies involved in the capital market or financial services. AMFI spreads awareness across the country on safe mutual fund investments. All AMC’s pay 0.01% of their AUM to AMFI for investor awareness.

Investors can approach AMFI for their grievances and register complaints against a fund manager or a fund house. AMFI is also popular for “AMFI NAV” facility it provides. This provides historical NAV’s for all Mutual Fund schemes. This is used by AMC’s, distributors and various research analysists.
Have an investment objective in place: 

All individuals have unique sets of needs like providing for children education/marriage, buying a car/house or traveling abroad, retirement planning etc. Individuals must prioritize their goals and develop portfolios dedicated for achieving the same.

Investors need to be aware of their risk profile while making any investment decision. Broadly speaking the ability to take on risk reduces as one ages. Thus, it should be understood that each individual has a unique risk profile and recognizing the same should be the first step. Hence, a risk-taking investor (e.g. young working professional with practically no liabilities)may invest in equities and equity mutual funds. On the other hand, risk-averse investors should hold a portfolio dominated by “fixed income” instruments like fixed deposits and debt mutual funds. 

Don’t ignore asset allocation:

Asset Allocation is a crucial exercise to follow while investing. Investing a large portion of the portfolio in the same asset class can prove to be a risky proposition. Diversifying your investments across asset classes like equities, fixed income, gold and real estate among others is as important as investing itself. A well-diversified portfolio helps investors diversify their risk across various asset classes.

Track your investments:

Investing is an ongoing process; investors need to continuously monitor the performance of their investments. This keeps them updated and also gives them an understanding to make necessary alterations to their portfolio as and when needed. Remember monitoring of your investments makes you feel in control and goes a long way in making smart decisions.

Select the right investment advisor:

Most investment advisors are self-centric and do not keep investors interests’ as a priority while advising. Service of an unbiased and professional advisor (intermediary) is imperative. Good advice and a good advisor is half the battle won.

An arbitrage mutual fund generates returns by en-cashing on the price variation in securities on different stock exchanges. The stocks in an arbitrage fund is not held for long. Arbitrage fund buys the stock in cash (spot) and simultaneously sells the same stock in the futures (derivatives) market. Difference between the spot price and future price is the return. Typically, an arbitrage fund will invest minimum 65% of the corpus in equity-related instruments. This makes arbitrage fund as an equity-oriented fund. Hence lower taxation as compared to debt funds.

BENEFITS OF ARBITRAGE FUNDS

Arbitrage funds are low risk funds: One of the greatest benefits of these funds is that they are low-risk funds. There is virtually no risk involved in trading these funds in the longer-term since each security is purchased and sold simultaneously.
Arbitrage funds flourish when the market is volatile: Another major benefit of arbitrage fund is that they are probably the only low-risk securities which actually flourish during highly volatile market conditions. Volatility provides the managers of arbitrage funds opportunities to buy and sell and encash on the price differential.
Better post tax returns:  Since Arbitrage funds are low risk, they are comparable to debt funds. However, they provide better post tax returns as compared to debt funds

What is SWP? And how can it help in financial planning?

In Systematic Withdrawal Plan (SWP), you can draw a fixed amount from your mutual fund investment at a specified frequency (monthly, quarterly, annual etc); you can specify the day of the month when the withdrawal should be made and the amount will be credited directly to your bank account on the specified day. You can continue your SWP as long as there are balance units in your mutual fund scheme account.

Over the last 4 – 5 years with growing popularity of mutual funds among retail investors, dividend paying schemes have attracted a lot of investor interest. Several mutual schemes have maintained good monthly dividend pay-out track records over the last few years and are seen as good investment options for regular income. However, investors should know that mutual fund dividends are paid at the discretion of the fund house and are not guaranteed unlike FD monthly interest.

Investors should understand that as per SEBI regulations, dividends can paid only from the accumulated profits of a scheme. In a prolonged market downturn, schemes which continue to pay regular dividends, may deplete their reserve of accumulated profits and may not be able to declare dividends until conditions improve.

Systematic Withdrawal Plans is a smart investment option for investors who need regular income from their investments because of the following reasons -
  • It gives fixed cash-flows to investors till the time they have sufficient unit balance. Unlike mutual fund dividends, you can decide how much cash-flow you want to receive.
  • For reasonably low rates of withdrawals, you can get both regular cash-flows as well as capital appreciation. Mutual fund returns in the long term are usually much higher than traditional savings products.
  • Systematic Withdrawal Plans is one of the most tax efficient income solutions for investors.
How does Systematic Withdrawal Plan work?

Systematic Withdrawal Plan generates cash-flows (income) for investors by redeeming units of mutual fund scheme at specified intervals. The number of units redeemed to generate cash-flows in an SWP depends on the SWP amount and the scheme Net Asset Values (NAV) on the withdrawal dates. In an SWP, your unit balance will diminish over time, but if the NAV grows at a faster rate than your withdrawal rate in the long term, then your investment value will be higher resulting in capital appreciation, intermittent volatility not with standing.

Tax Advantage

Interest income from FD and most post office small savings schemes are taxed as per the income tax rate of the investor. SWP from equity / equity oriented mutual funds are subject to capital gains taxation. Withdrawals made within 1 year of investment are subject to short term capital gains tax @15%. Capital gains arising out of withdrawals made after 1 year of investment are tax free up to Rs 1 lakh of capital gains per year. Long term capital gains in excess of Rs 1 lakh are taxed at 10%. The beneficial tax treatment makes SWP one of the ideal long term income solutions.

Conclusion

SWP is a smart and convenient option for getting predictable cash-flows from your investment; at the same time, there are multiple considerations that you need to be aware of, to get the desired results from your SWP. If you need regular income from your investments, you should discuss Systematic Withdrawal Plan or SWP option with your financial advisor.
Please mark all your queries / responses to
Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. and its affiliates, information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information. , its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.