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How Can You Claim Mutual Fund Units After Death of the Holder?

Most of us invest in mutual funds or other investment options to achieve our individual and family member’s life goals. But do you know the process that your loved ones have to carry out to avail mutual fund investment after you die?

After you die, the fund houses transmit the mutual fund units to the surviving unit holders or nominees and legal heirs.

Unlike our previous generations, most of us don’t have any physical investment statements for our family members to find out after our death. Hence, your nominees or heirs must know your investments. Tell them the procedure that they need to follow after your death to take the best course of action.

While most fund houses have a standard procedure for transmitting mutual fund units, there might be a slight variation in the process among the different fund houses.

You can download the required forms and annexures from the mutual fund house’s website.

During transmission of units, three types of situations can arise:

1.Transmission of units to surviving joint holders

2. Nominee is registered

3. Nominee is not registered with the mutual fund

Here’s what you need to know and do in these three scenarios.

1.Transmission of units to surviving joint holders

If several investors jointly held the mutual fund investments, the fund house pass the units on to the second holder after the death of the first holder.

Here are the documents that would be required in such a scenario:

• Transmission Request Form (Form T2) for transmission of mutual fund investments to the surviving unitholder/s.
• Original death certificate or photocopy that is duly attested by a Notary Public or a Gazetted Officer is needed.
• The surviving unit holders need to provide a copy of the PAN Card if it was not provided earlier.
• Cancelled cheque of the new first unitholder with pre-printed name or recent bank statement or passbook of the new first holder needs to be submitted.
• If the surviving holders are not KYC compliant, KYC Acknowledgment or KYC Form must also be submitted.

2. Nominee is registered

The mutual fund units are transferred to the nominee after the death of the sole investor. The nominee may redeem the units or stay invested after the transmission of the units are successful.

However, you need to note that the nominee doesn’t ‘own’ the mutual fund units. It holds the units ‘in trust’ till the legal heir claims it. Legal heirs of the deceased investor may dispute the transfer of investments to the nominee. In that case, as per the SEBI Regulations, the units are held ‘in trust’ by the nominee till the issue is sorted.

The nominee needs to make an application to get the units of the mutual fund units transferred. The fund houses transfer mutual fund units to the registered nominee within 30 days.

There can be multiple nominees as well. In this scenario, each nominee will receive a portion of the mutual fund units as per the instructions set by the unitholder.

Here is the list of documents:

• The Transmission Request Form (Form T3) for transmission of units to the nominee(s) is required.
• Suppose the amount is up to Rs.2 lakh. In that case, the bank manager needs to attest to the nominee’s signature as per Annexure-Ia. If the nominee is minor, the signature of the guardian is to be attested in the form.
• Suppose the transmission amount is over Rs.2 lakh. In that case, the notary public or a Judicial Magistrate First Class (JMFC) needs to attest the nominee’s signature. The attestation goes in the space provided in the form under the signature of the nominee.  
• The claimant should submit original death certificate or photocopy that is attested by a Notary Public or a Gazetted Officer.

Nominee’s cancelled cheque or copy of the nominee’s recent bank statement or passbook is required.  

• Copy of the birth certificate needs to be provided if the nominee is minor. Also, KYC Acknowledgment or KYC form of the nominee(s) or guardian is also required in such a situation.

A nominee is not registered

If there are no nominees or joint holders, the mutual fund units are transferred to the legal heirs. However, the legal heirs need to support their claims with the necessary documents.

This process is complicated and requires several documents. Besides the regular documents, there are a few documents the claimant needs to provide.

If the transmission amount is below or Rs 2 lakh:

• Documents that establish the relationship between the claimant/s with the deceased investor/s
• Bond of Indemnity – as per Annexure-II so that the units are transmitted without production of legal representation.
• Bond of Indemnity is not required if the legal heirs have submitted the Succession Certificate or Probate of Will or Letter of Administration where the claimant is named as a beneficiary. This means that an affidavit per Annexure-III from such legal heir/claimant(s) is sufficient.
• Each heir needs to give an individual affidavit as per Annexure-III.
• NOC from other legal heirs as per Annexure-IV is required whenever it is applicable.

If the transmission amount is more than Rs 2 lakhs:

Individual Affidavits are needed from each legal heir as per Annexure-III.

The claimant also needs to submit any one of the documents mentioned below:

• Notarised copy of Probated Will or
• Succession Certificate issued by a court
• Letter of Administration or court decree if there is no will

Conclusion

We don’t know what the future holds for us. However, we can take actions that may make it easier for our loved ones to access our investments after our death. Hence, it is essential to add a nominee and make them aware of the procedure.

This blog is purely for educational purposes and not to be treated as personal advice. Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

Do you invest in mutual funds through a Systematic Investment Plan (SIP)? Or, do you invest in mutual funds from time to time? For most of us, investments and redemptions take place over a period. In that case, what is the best way to calculate the returns on your mutual fund investments?

There are different ways to calculate mutual fund returns. Compounded Annual Growth Rate (CAGR) is mostly used to calculate the returns. It is a simple formula where you take the invested amount and the current investment value into account. The formula helps to calculate point-to-point returns. However, to calculate regular or irregular investments or redemption at different points in time, you need to adopt a different method.

Extended Internal Rate of Return (XIRR) may be a better way to calculate returns on your periodic investments.

What is XIRR?

While investing in mutual funds through SIP, you are investing regularly at a pre-determined interval. As each investment stays invested for different periods, the returns generated on these investments would differ. This is because each investment would remain invested for a different time frame. Also, the returns generated during the period would vary. Hence, to make it easier for for the purpose of calculation, we can assign an average CAGR.

We can call this adjusted CAGR as XIRR.

MS Excel automatically calculates the XIRR for you through the XIRR function.  

How is XIRR calculated?

To calculate XIRR, you need the SIP amount, date of investment, date of redemption, amount of partial redemption (if any) and the total redemption amount.

The formula for XIRR is

XIRR= XIRR (values, dates, guess)

Values are the SIP or transaction amounts, dates are the transaction dates, and guess is the approximate return you expect from the investment. You may skip the guess part.

When calculating in excel, we consider the SIPs and other investment amounts as outflow. Hence, we put a minus sign before the invested amount. Please note that there is no negative symbol for inflow or the redemption amount.

Also, make sure that you input the investment or redemption date in the dd-mm-year format as the formula may not work in other formats.

Let us take an example:

Let us assume that person A invested Rs.10,000 per month in a scheme for a year. At the beginning of the 13th month, the person redeemed the total investment worth Rs. 1.30 lakhs.

Here are the steps that you need to follow:

Step 1: Make a table with two columns. Input the date of investment/redemptions on one column and the SIP amount in the second column.

Step 2:Use the XIRR function in Excel. Now, select the values and dates. Select the range of transaction values and investment dates from the specific columns.

Investment Date	SIP Amount
10-01-2020	-10,000
10-02-2020	-10,000
10-03-2020	-10,000
10-04-2020	-10,000
10-05-2020	-10,000
10-06-2020	-10,000
10-07-2020	-10,000
10-08-2020	-10,000
10-09-2020	-10,000
10-10-2020	-10,000
10-11-2020	-10,000
10-12-2020	-10,000
10-01-2021	1,30,000
XIRR	15.66%

Step 3:Convert the value into a percentage for XIRR in percentage terms.

Here, the XIRR is 15.66%.

You can use the XIRR formula to calculate monthly SIP, yearly SIP, and returns from uneven investment amounts. Moreover, the date of investment/ redemption can also vary.

Conclusion:  

If you are a mutual fund investor, you need to know that SIP returns are not the same as the regular CAGR. XIRR is a useful MS Excel function through which you can calculate the rate of returns of your SIP instalments.

This blog is purely for educational purposes and not to be treated as personal advice. Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

Having a hard time following your budget? Plan for your Splurges

We all work hard to earn money. Saving and investing money is essential, as it can help you have a better future. After taking care of necessary expenditures and investments, you can make way for splurges in your budget.

Everyone has specific areas where they want to splurge, and that is perfectly fine.

Here’s why you should include splurges in your budget:

Most of the items that are accounted for in your budget are things that you aren’t excited about. Paying rent and bills is boring. But what if you planned for that spa or lettering kit? In that case, you would be more inclined to follow your budget. 

Moreover, spending money on our wants makes us feel good about ourselves. If you are very restrictive about your spending, you can get frustrated, and that willdiminish your will to follow your budget. Moreover, there can be a higher risk of going overboard when you finally spend money.

Making way for your splurges in your budget gives you the permission to spend money in a planned manner.

How to splurge

It is easy to confuse splurging with lavish spending. Here’s how you can plan and enjoy your splurges:

Be cautious if you are paying off debt

Are you paying off debt such as personal loans or credit card bills? In that case, you might want to be cautious while splurging. Don’t avoid splurging altogether. Keep it very minimal. Otherwise, paying off your debt may feel like a struggle and you may later end up taking more debt to compensate. 

Limit your splurges to a small percentage of your income

While spending a part of your income may make you feel good, it is vital to set a limit. One can spend 10% of their income on wants. However, you need to decide where you want to spend and the percentage of your income that you want to set aside for that expenditure.

Create a splurge fund

Now that you have figured out the percentage of your income that you want to allocate towards splurges, it is time to create a splurge fund. You can park the money in a liquid fund especially meant for your splurges. If you are aiming for a large purchase, you can set up a Systematic Investment Plan (SIP) and the amount will be automatically debited from your savings and credited to your liquid fund.

If your splurges don’t require investment, you can transfer the amount to a different savings account. You can park your bonus, cash gifts received, etc., in your splurge fund.

Don’t let your emotions control your spending 

Emotions play a significant role in how we handle our money. Sadness and successes can prompt you to spend more money. So, it is best not to make any rash decisions under these circumstances. It is better to ask yourself if you would spend the money otherwise as well. You may later end up regretting your spending decisions.

Don’t feel guilty about spending money

Many people feel guilty after spending money. But it’s not something you need to feel guilty about. You have planned for your splurges after considering your needs and investments.

Moreover, don’t feel guilty aboutspending money with your loved ones as relationships eventually mean more to a healthy life.

Mix things up

You may have specific areas where you enjoy spending money. However, it may fail to deliver the same level of happiness for months on end. So, it is always an excellent option to mix things up and try something new. For example, if you love reading self-improvement books, you can switch to reading a few novels. Or you can take up a new interest or hobby.

Conclusion:

Splurging in a planned way can help you follow your budget. You can budget a certain percentage of your income as ‘fun money’ that you could use to buy things or experiences that you love or for any unplanned expenses. By planning your splurges in your budget, you can have fun with zero guilt.  

This blog is purely for educational purpose and not to be treated as a personal advice. Mutual fund investments are subject to market risks, Read all scheme related documents carefully.

The performance of the underlying securities and the broader markets are two factors that decide whether your mutual fund portfolio will be in green or red. 

Mutual funds don’t guarantee any returns and there is a possibility of facing adverse scenarios.To avoid such a phase, you must have a better understanding of mutual funds before investing.

Fund managers, managing mutual funds, invest in several stocks, commodities, and bonds, reducing the impact of poor performance by the underlying securities. However, the profit or loss in the mutual funds depends on stock performance, market volatility, economic growth etc.

So, if you think you are losing money in mutual funds, here is what you can consider doing.

What to do if there is a loss of money in mutual funds?

Even if you are well-versed with all the aspects of mutual funds and their working, some adverse scenarios might lead to losses. If that is what you are facing, here are some tips to help you.

1.Avoid Redeeming in Haste

Even if you are losing money in mutual funds, you must think twice before redeeming your money.

Mostly, people take their money out of mutual funds and wait for the market to climb again for re-investing. But the time might not always be perfect. It could lead you to a position where you end up investing at a price higher than what you sold the mutual funds for. This isn’t good for the overall wealth generation process and so such a decision must not be taken in haste.

Moreover, redemption must not be decided based on current market situations as markets tend to go and down. Furthermore, a better option to be saved in such cases is investing in mutual funds via the SIP route that frees you from the timings of the market.

2.Compare Performance with Other Funds of the Same Category

If the market is not going well or your mutual funds are performing poorly in your mutual funds, in such instances, you can compare the performance of your mutual fund with other similar funds of the same category.

If your fund’s performance is similar to the other funds, you need to be patient with your investments. Even if you found only a slight difference in the performance of your mutual funds and the others, you do not necessarily have to consider switching.

This is advised because the difference in such performance is only evident for a shorter period. In the long run, the best mutual funds of the same category mostly give similar returns.

3.Compare Performance with Other Funds of the Different Categories.

Some mutual funds are more volatile, which means that they might offer greater returns along with higher risk. If you think you cannot manage the involved risk, you must look at other categories’ mutual funds and performances.

4.Research the Sector Profoundly

You might also lose money in mutual funds when your investments are sector-focused (the funds that only invest in some specific industry or sector). Even when the overall market is going well, some sectors might suffer a fall. Therefore, if any sector underperforms, you must research it well.

Sector funds are riskiest and are very hard to predict as compared to other diversified equity mutual funds. Thus, if you are losing money due to an investment in sector funds, you must focus on the industry’s health and prospects.

It is advisable to continue investing if you think that the industry/sector has a promising future. Otherwise, you can plan to redeem your money and invest in some other mutual fund. Further more, you can also consider diversifying the mutual funds and have a mix of different funds.

Conclusion

There are plenty of reasons that may lead to setbacks in an economy, including elections, geopolitical tensions or recessions. This can adversely affect your mutual funds, and you might start losing money.

 But you must always handle the situation calmly and wisely and never hastily. It would be best if you take the help of professional before taking any action, and in that way, you will not have to bear significant losses.

 This blog is purely for educational purposes and not to be treated as personal advice. Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

Are you an NRI? Here’s Everything You Need to Know about Mutual Fund

Mutual fund is a popular investment tool for individuals as it helps them to achieve their financial goals. Mutual fund is for everyone as it comes in different shapes and sizes. No wonder mutual funds have caught the attention of non-resident Indians (NRIs) as well.

Non-Resident Indians (NRIs) are people of Indian origin who live outside India. Until March 2020, any person who stayed in India for less than 182 days (or less) in any financial year was considered as an NRI. Currently, your residency status will depend on the period of stay and total income.

If you are an NRI and want to know more about mutual fund investment, this article is for you.

Can NRIs invest in mutual funds?

Yes, NRIs can invest in mutual funds. However, the investment process can be bit longer for NRIs. You need to remember that no approval from RBI, SEBI, or any other regulatory body is not required to invest in mutual funds.

However, few fund houses may not accept investments by NRI. 

How can NRIs invest in Indian mutual funds?

The first step to invest in mutual funds is to complete the KYC process. You just need to complete the KYC process once and you can invest in mutual fund schemes from multiple fund houses.

Here are the following documents that are required to complete the KYC:

1. Copy of Passport
2. Copy of Overseas Address Proof (in English)
3. Copy of Indian PAN card
4. Two passport size photos
5. The fully filled KYC form

If you are currently in India, you can fill up the KYC form and submit it with the necessary documents by taking help from a mutual fund distributor or by submitting the required documents at CAMS or Karvy office.In-person verification (IPV) is essential to complete the KYC process. After you submit the documents, IPV will take place and an authorized official will verify the submitted documents with the originals.

You need not worry if you are not in India. You can approach authorized officials of overseas branches of Scheduled Commercial Banks that are registered in India, Court Magistrate, Judge, Indian Embassy/Consulate General etc. in your resident country. Such officials can carry out in-person verification and verify the original documents. After the in-person verification is done, you can mail the KYC form with the necessary documents to the mutual fund house, CAMS or Karvy. Your KYC status will be updated within a few weeks. You can also check your KYC status by visiting the website.

If you are residing in US or Canada, FATCA declaration is important. You just need to provide information such as country of tax residence, tax identification number, citizenship.

NRE and NRO Account for NRI mutual fund investment

As per regulations, mutual fund houses cannot accept investments in foreign currencies. Hence, you need to make the investment in rupees from your NRE or NRO bank account. You can use both the accounts for mutual fund investments, as these accounts are rupee denominated.

The main question that now arises is whether you should opt for NRO or NRE account for your mutual fund investment.

Here are some of the key differences that you need to consider when you choose one over the other:

• NRE Account is used to deposit foreign earnings while the income generated in India is deposited in the NRO account.
• The NRE account is tax free, whereas the balance in NRO account is taxable as per the income tax slab.
• The ability to repatriate is one of the key differences between these two accounts. NRE accounts deposits can be fully repatriated, while balance in NRO accounts cannot be repatriated. This means that mutual fund investments that are made through external sources can be credited to the NRE account on redemption, and the income from the investments can be repatriated.

Taxation Rules

The taxation rules on mutual funds are similar for resident Indians and NRIs. In case of short-term gains on debt mutual funds, the gains are added to the resident’s income, but a TDS of 30% is applied for NRIs. Gains from debt mutual fund investments that remain invested for less than 36 months are considered as short-term capital gains.

You can claim Double Taxation Avoidance Treaty (DTAA) to avoid double taxation on the TDS and tax paid in India against the tax payable in the country of residence. This ensures that the same income is not taxed twice. 

Consult your mutual fund distributor to know more.

This blog is purely for educational purpose and not to be treated as an personal advice. Mutual fund investments are subject to market risks, Read all scheme related documents carefully.

Liquid Funds Vs Arbitrage Funds

There are different mutual funds, and they serve different purposes. Some mutual funds help to achieve long-term goals while other funds cater to our immediate cash requirements.

Liquid funds and arbitrage funds are the two common types of mutual funds that investors invest to park excess funds with relatively lower risk to overcome cash needs.

What are Liquid Funds?

Liquid Fund is a type of debt mutual fund that invest in highly secured debt securities such as treasury bonds, commercial papers. The risk of liquid mutual funds is comparatively lower than other funds. According to the market regulator SEBI, the underlying securities of a liquid fund needs to mature within 91 days.

What are Arbitrage Funds?

Arbitrage Funds are equity funds that aim to take advantage of the price difference between the cash market and the futures market. E.g., you buy a product in one location and sell it in another. Arbitrage funds invest predominantly in arbitrage opportunities that are available in the cash and futuresequities market that makes these funds relatively less risky than other equity funds.

However, which type of fund should you choose to park your money for short-term? Let us take check the differences between liquid funds and arbitrage funds. 

Liquidity:

Liquidity or ease of liquidation of assets is one of the important factors to consider when you are parking money for the short term or for immediate requirements. Liquid funds can be easily redeemed, and the redeemed amount is credited to your bank account. Most of fund houses have introduced instant redemption facility on liquid funds. With the help of this facility, you can instantly redeem up to Rs.50,000 or 90% of your investment value from liquid funds. Fund houses will credit the rest of the amount to your savings account within one or two working days.

As arbitrage funds are equity funds, you will receive the redeemed amount in your bank account in three to five working days.

So, if you are looking for an investment choice that offers instant redemption, you can go for liquid funds.

Tax on Capital Gains:

As liquid funds are debt funds, Long-Term Capital Gains (LTCG) will apply on investments that remained invested over 36 months while Short-Term Capital Gains (STCG) will apply on the units that were redeemed before 36 months. LTCG for liquid funds stands at 20% after considering the indexation benefits. In case of gains from units that stayed invested less than 36 months, gains are added to your income and taxed as per your income tax slab.

As arbitrage funds are equity funds, LTCG is will apply if you remain invested for over 12 months. There are no long-term capital gains if the gains are less than Re.1 lakh. Please note that it includes all equity investments including stocks and other equity mutual funds. For units redeemed before 12 months, 15% tax on capital gains apply.

Arbitrage funds are tax-efficient than liquid funds. You can choose arbitrage fund if you desire tax efficiency.

Risk factor:

The underlying securities of arbitrage funds and liquid funds are different. Arbitrage funds take advantage of the spread between the cash and futures market. So, these funds give high returns when the spread is higher, and the return falls when the spread narrows.

Liquid funds invest in the highest quality debt papers that mature within 91 days. Hence, liquid funds carry less risk than arbitrage funds. You can go for liquid funds if you don’t have technical knowledge of the equity markets.

If you are looking to park funds for short-term needs, liquid funds and arbitrage funds are two popular options. Consider their liquidity factor, tax on capital gains and risk factor before investing in a liquid fund or arbitrage fund.

This blog is purely for educational purpose and not to be treated as a personal advice. Mutual fund investments are subject to market risks, Read all scheme related documents carefully.

How to Calculate SIP Returns?

There is no doubt that Systematic Investment Plans (SIP) has become one of the popular means to invest in mutual funds. After setting up an SIP, the investors invest a pre-determined amount of money at regular intervals in a specific mutual fund. You can invest in several mutual funds through SIP.

Many investors have the misconception that SIP investment is safer than onetime investment. It is just a myth and the returns on SIP investments depend on various factors such as the mutual fund category, the performance of the market and time.

In this article, we will discuss the different ways to calculate SIP returns.

Return Calculation for SIP

Calculation of SIP returns is little different from calculating returns on onetime investments. It is because SIPs are regular investments throughout the course of a period, while lump sum investment is a onetime investment.

One way that most investors calculate SIP returns to understand the growth in their SIP investments is by adding the total investment amount in the year and calculating the returns on the entire investment. However, it is not the right way to calculate the returns on SIP.

Let us take an instance for clarification. We assume that you have set up an SIP of Rs.10,000 that has given a return of 10%. In the case of SIP investments, the first SIP instalment will generate a return of Rs.1000 i.e., total 10% returns while the return on the next instalment will be Rs.916.67 and so on.

Ways to Calculate SIP returns

Here are some methods to calculate SIP returns:

Absolute Return

Absolute return is the easiest way to calculate mutual fund returns. It is also known as the point-to-point return, as the initial and present unit price (NAV) is used to calculate the returns.

Absolute return = (Present NAV – initial NAV) / initial NAV x 100

The absolute return can be used to calculate the annualised returns.

Let us assume that the NAV of a mutual fund has increased from 20 to 35 in 7 months or 210 days. In that case, the absolute return is 75%.

However, considering absolute returns to calculate SIP returns won’t be right, as the investor does not invest the total amount of SIP at one time.

Simple Annualised Return

The returns that are shown are typically yearly returns of an investment option. But what if your holding period is less than 12 months? In that case, you can annualise the returns.

Simple Annualised Return: ((1 + Absolute Rate of Return) ^ (365/number of days)) – 1

If we take the example where the absolute return was 75%, the annualised return will be

= {(1 + 75%) ^ (365/210)} – 1 = 164%

XIRR Method

XIRR is the most widely used method to calculate SIP returns as it considers the different cash flows to calculate the internal rate of return.  

You can use the XIRR formula in excel to calculate the SIP returns.

XIRR formula in excel is: XIRR (value, dates, guess)

Conclusion

Calculation on SIP is little different from return calculations on onetime investment, as the SIPs are regular investments and the investment amount may vary. XIRR is the best way to calculate SIP returns. You can also use a SIP calculator to check out your SIP returns. 

 This blog is purely for educational purposes and not to be treated as personal advice. Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

5 Investment Lessons from Yoga

Most of us are aware of yoga and its multiple benefits. Theseadvantages of yoga have made it popular among individuals in different stages of their life. Regular and correct yoga practice can boost physical and mental health, lead to decreased lifestyle-related issues, and increase emotional stability and attention span.

In addition, yoga teaches us several lessons on investment. On this International Yoga Day, we will go through a few investment lessons that we can learn from yoga.

Focus on your goals

There are different benefits of practising yoga. One of the major benefits that is especially helpful in the current scenario is focusing our mind and establishing a sense of calm.

In investing, focusing on your financial goals can help you ignore market noise. Paying attention to news and events can easily distract you and prompt you to make hasty decisions that can hurt your finances.

Handling money can be like an emotional roller coaster. Hence, it is crucial to focus on goals.

Practice regularly

We need to practise it regularly to get the maximum benefits from yoga, such as centring attention and mental clarity. Even a few minutes of daily practise of yoga asanas, and breathing exercises can do wonders in the long term.

If you stop doing yoga and plan on resuming it later, you will find that the benefits, such as flexibility that you have built over the weeks, is lost.You may have to start from ground zero.

Investing is no different. Just like regular yoga practice, you can benefit from regular and disciplined investment. Setting up a Systematic Investment Plan (SIP) is one of the easiest ways to build a disciplined investment approach. Investing consistently and staying invested can allow compounding to work its magic. Compounding builds wealth over the long term.

Build a strong foundation

Before exploring any field, it is good to have a firm grasp of the fundamentals. Instead of reinventing the wheel, learning from others can help you avoid mistakes and decrease your chances of failure.

Before doing yoga poses, it is essential to understand the risks associated with different postures. E.g., all poses are not suitable for everyone. Moreover, it is crucial to do yoga in the right way to avoid injuries.

Similarly, when investing in mutual funds, it is essential to research and understand the fundamentals of the risk and return potential of different mutual funds and their objectives.

Knowing when to invest and when to exit from mutual funds is like getting in and out of a yoga posture.

Importance of patience

Yoga teaches us patience. In different yoga postures, we need to hold yoga poses for several seconds and minutes. The holding power increases when we continue to practise yoga regularly. 

Similarly, we need to be patient with our investments. One way to do that is to link our mutual fund schemes with our short-term and long-term goals.  

Importance of an expert

Learning yoga online and practising it without expert consultation may lead to injuries. It is especially true for people who haven’t practised yoga earlier. A yoga instructor can show us and guide our yoga practices and help us get the maximum benefits from our practice. Having a yoga instructor may help us stay disciplined and continue with our yoga practice.

While investing, an expert can also help in our investment journey. An expert is also required to ensure that you don’t make any mistake which can negatively impact your portfolio in long run. You can seek our help to take the right decision which are suitable to your needs.

Mutual funds and yoga are two different aspects. But if we do them right, yoga and investment can be good for your physical and financial health.  

This blog is purely for educational purpose and not to be treated as an personal advice. Mutual fund investments are subject to market risks, Read all scheme related documents carefully.

Know how SIP investments taxed

For the last few years, Systematic Investment Plans (SIPs) have become one of the popular ways to invest in the markets through mutual funds. However, before the reintroduction of Long-Term Capital Gains (LTCG) tax in the budget of 2018, long-term SIP returns from equity funds were completely tax free, as equity funds were exempted from Long Term Capital Gains (LTCG).

Now, after the change in this law, several investors are unsure of how they should calculate their SIP returns and tax liability. To ease out this problem, let’s see the tax angle of SIP investment. Basically, the tax on SIP currently depends upon whether the investment was made in a non-equity or an equity fund, as they have different tax rates.

How Does SIP Taxation Differ?

Unlike lump sum investments that are only one investment, SIP is made multiple times over a period. While you may consider a one-year-long SIP as one investment, when it comes to taxation, every instalment is regarded as an additional investment.

This way, the holding period of every instalment gets calculated.

Tax on SIP Investments on Equity Funds

For instance, suppose you started a monthly SIP in the equity scheme on 1st January 2020. On 2nd January 2021, you decided to redeem the investment.

In such a scenario, only the capital gains on the purchased units from your first instalment, the one made on 1st January 2020, will be considered as the Long TermCapital Gain (LTCG) as you have held the same for a period of more than one year. There is no tax on longterm capital gains below Rs.1 lakh. Capital gains above Rs. 1 lakh are taxed at 10%.

For the rest of the instalments, the holding period will be considered less than one year. Thus, the gains will be short-term. Short Term Capital Gains(STCG) of 15% will apply on these units.  

Here, the ‘first in first out’ rule is followed. This means the units purchased first will get redeemed first.

Tax on SIP investments on Debt Funds

However, if you had invested through SIP in a debt or debt-oriented hybrid funds, LTCG will apply on units that were invested for over 36 months and the profit is taxed at a rate of 20% after indexation.

For investments below 36 months, the capital gains are added to income and taxed as per the income tax slab.

How is the Gains on SIP Investment Calculated?

Put simply, tax on the total investment of SIP is the total sum of tax payable on every instalment. To calculate the same, an individual calculation of tax on each instalment has to be done. Jotted down below is the entire step-by-step procedure.

• First of all, the classification of equity and the non-equity fund is done
• Second, the holding period is computed to discover whether the gains are long-term or short-term capital gains
• Then, the cost of purchase is noted for every instalment
• In case the funds are equity, it has to be checked whether the grandfathering clause is going to be applicable (this is for investments that have been made before 31st January 2018).
• However, if it is a debt fund, it has to be figured out whether LTCG will be applicable. If yes, adjustment for indexation will be made
• Next, the calculation of applicable tax for every instalment will have to be done
• Short-term and long-term gains will be separated
• Approximate tax rates will be applied to find the payable tax amount

Conclusion:

Tax on SIP investments depends on the underlying securities and is taxed as per the current taxation rules on equity and non-equity investments. However, in case of SIP, every instalment is considered as an additional investment.

Consult us to know more.

This blog is purely for educational purpose and not to be treated as an personal advice. Mutual fund investments are subject to market risks, Read all scheme related documents carefully.

5 Types of Life Insurance Policies

When we think about money, the first thing that comes to our mind is investments and the rate of returns that these investment options can fetch. We tend to delay buying a life insurance cover as most of us believe that insurance is not useful. However, it is one of the essential steps of financial planning.

When you go to look for life insurance policies, you will find several types of policies that only increase your confusion.

In this article, we will explain about the different types of life insurance policies so that you can select the best policy for yourself and your family members.

But before we dive in the different types of life insurance policies, let us understand the meaning and importance of life insurance.     

Meaning and Benefits of Life Insurance?

When you buy a life insurance cover, the insurance company promises to pay the sum assured life cover to your nominee after your death, in an exchange of a premium that you pay on regular intervals.

Depending on the type of life insurance policy, you may also receive the maturity benefits if you survive the policy term.

Life insurance is a priority if you are the sole earning member of your family or yourfamily members depend on you. It is because, in case of an unfortunate event, your family will receive monetary compensation as sum assured from the life insurance company. 

An adequate life insurance cover will also help take care of your family member’s financial goals, such as children’s higher education. 

Tax deduction on the life insurance premium paid is an added benefit of life insurance. 

Types of Life Insurance

There are five main types of life insurance policies that individuals can take to avail life cover. The basic aim of a life insurance policy is to provide protection. However, there are a few insurance policies that offer a mix of insurance and investments.

The sum assured will also vary among the different types of life insurance policies. Before you get any type of life insurance, it is always best to understand the features and benefits of the life insurance policies.

1.Term Insurance  

Term insurance is the simplest life insurance plan. It is a pure insurance product and the nominee will receive the sum assured after the death of the policyholder. It is one of the cheapest life insurance policy as the nominee receives the amount only at death. This means that there are no cash benefits on survival.

Term insurance offers a high life insurance cover at an affordable rate. Moreover, the premium amount is less if you take the policy at a young age. Also, you stand to gain in the long run as the premium amount remains same throughout the tenure.

2. Endowment Plan  

The policyholder can select a policy term from 10, 15, 20, 30 to 40 years.

Endowment Plan islike term insurance policy and it is a combination of savings and insurance. It is similar like term insurance plan as the nominee of the policy will get the sum assured after the death of the policyholder. Moreover, if the policyholder survives the policy term, the policyholder will receive a lump sum payout on a fixed date. The policyholder can use the lump sum amount to purchase property, fund children’s education or take care of retirement, etc.

Endowment plans are expensive than term insurance plans as it comes with a higher premium as the policyholdersreceives maturity benefits.

3. Unit Linked Insurance Plan (ULIP)  

ULIPs is a combination of insurance and investment. The aim of an ULIP is to generate wealth along with insurance cover. When you buy an ULIP, a part of the premium is invested in asset classes such as equity and debt instruments. The rest of the premium is used to provide insurance cover.

You can switch from equity and debt investments as per your risk appetite and market performance. 

ULIPs have a lock-in period of five years. This means that you can’t redeem your money before five years. 

4.Money Back Policy:

Money Back Policy is a mix of insurance and investment. While a regular life insurance plan pays a lump sum amount at maturity, Money Back Plans offer payouts at regular intervals during the policy term. The policy holder receives pay outs after a few years from the start of the moneyback plan, and it continues till the end of the maturity period. The benefit appliesif the policyholder is alive.

In case of an unfortunate event, the nominee receives the whole maturity amount. This is irrespective of the survival benefits that the insurance company has already paid out.

5.Whole Life Policy 

The Whole Life Policy is valid for the entire life of the policyholder. The insurance company will pay the life cover to the nominee after the death of the insured person. The policy comes with survival benefits as well. Policy holders can also borrow money against the policy.

Conclusion:

Life Insurance is an important part of financial planning. Term insurance, endowment plan, ULIPs, Money Back Policy and Whole Life Policy are some common types of life insurance plans. You can consult us to know more.

This blog is purely for educational purpose and not to be treated as an personal advice. Mutual fund investments are subject to market risks, Read all scheme related documents carefully.