Before investing in mutual funds, it is essential to understand the tax rates and returns. Investments carry risk factors due to market cycles. In mutual funds, the investment is with equity funds, other assets and government securities. If shares and equity-linked mutual funds are owned for more than one year and yield a return of one lakh, the investor gets a tax rate of 10 per cent plus cess and surcharge. The blog reveals the types of mutual funds, risk factors with mutual funds, tax rates of mutual funds, professional courses for mutual funds and skills of CA and CMA in the arena of investment.
Different types of mutual funds:
Equity, hybrid and debt mutual funds are the three types of funds. The performance is the basis for determining the value of the fund. The NAV is the division of total securities value and outstanding shares. The NAV value changes towards the end of the trading day. The value of NAV has no fluctuations during the market hours. Mutual funds gain returns periodically. Due to changes in the market value of the mutual fund investors, the rise in price of the mutual fund ends with capital gains. The owners of mutual funds receive dividends, and interest and distribute to others. Stock funds, money market funds, index funds, bond funds, balanced funds, international or global funds, speciality funds and income funds are the different types of mutual funds with specifications.
Tax rates of mutual funds:
Citizens in high tax bracket prefer mutual fund as the best option as it gives lower tax rates. In certain cases, the government allow tax deduction to the payers. The four factors that influence the tax rates are as follows: dividends, fund types, capital gains, and holding period. As per the rules from the Income tax of India, the holding period decides the capital gain. If the holding period is less than one year, then it is a short-term capital gain. If the holding period is more than one year, then it is a long-term capital gain. The dividend amount and long-term capital gains are charged with 10 per cent without indexation. The investor gets benefits through capital gains and dividends. If the mutual fund company is gaining surplus profit, the same is divided among the investors. The investor sells the units if there is considerable appreciation in the price of the units. The profits received after selling the mutual fund are the capital gain. The company’s performance and market performance are the trendsetters in the equity market. The 2023 tax rates of different mutual funds are as follows:
- As of March 3, 2023, the taxation rate of equity mutual funds, arbitrage funds and other funds with a holding period of 12 months is 15 per cent for the short term and 10 per cent for the long term without indexation.
- The debt mutual fund and floater fund with a holding period of 36 months get tax charges as per the slab rate.
- The conservative hybrid funds and other funds with a holding period of 36 months are charged with a slab rate.
- Other funds with an investment of above 35 per cent and less than sixty-five in equity with a holding period of 36 months are charged with slab rate for short-term capital gain. In the case of long-term capital gain, the funds undergo a percentage of twenty per cent with indexation.
- Balanced hybrid funds with a holding period of 36 months are charged with a slab rate under short-term capital gain. The balanced hybrid fund is charged with twenty per cent indexation in case of long-term capital gain.
- The aggressive hybrid funds with a holding period of 12 months get a tax rate of fifteen per cent under short-term capital gain. In the case of long-term capital gain the tax per cent is ten.
Risk factors with mutual funds:
The two types of risk in mutual funds are volatility and liquidity risk. Volatility risk reflects the micro-economic factors. Liquidity risks are associated with the lock-in period and number of buyers in the market. Debt mutual funds are for short-term periods. These mutual funds provide short-term gains. The risk factors with debt mutual funds are credit risk, interest risk, inflation risk, currency risk, concentration risk, and rebalancing risk. Portfolio management, investment through SIP, STP, and diversification are the ideas of experts to manage risk in mutual funds.
ICAI course for mutual fund investment:
ICAI offers post-qualification courses for the members to equip them with specialised knowledge. Certificate courses on derivatives, certificate courses on financial markets and securities laws, and certificate courses on fundamental and technical analysis of stocks including equity research are the courses from ICAI that enhance stock market knowledge. ICAI members are eligible to enrol in these courses. Fundamental analysis of the stock market focuses on corporate events. The fundamental analysis of the equity market follows the annual results, quarterly results, and special announcements. Technical analysis based on market fluctuations. The internal and external factors of the business are understood with the help of this analysis.
Skills of CA and CMA in mutual funds:
A practising chartered accountant or company secretary cannot become a mutual fund agent. Chartered accountants and company secretaries not practising are eligible to do mutual fund agent jobs. Mutual fund agent gets an earning of 0.1 to 2 per cent with the purchase of every unit. The combination of qualifications B.Com., CA, CMA and ACS are the sought-after keywords for the portfolio manager position. Chartered accountants can work as mutual fund managers and mutual fund agents after completing specialised courses on the stock market.
Chartered accountants work with the internal operations of the business. The auditors prepare the financial statements and audited results. Cost accountants deal with the managerial and external operations of the business. The cost accountants handle the price fluctuations, price strategies, budget and cost audit. Share market and mutual funds fall under the external part of the business. The mutual fund managers analyse the risk factors, tax benefits, and market demand by examining the internal and external business operations. The fundamental knowledge of the professionals helps in acquiring the domain knowledge.