Principal sum

Fund Query: How a 54-year-old man can invest a lump sum of 30 lakh in mutual funds


I have invested in several equity, hybrid and debt mutual funds and have accumulated over 50 lakh over the past few years to cover my daughter’s expenses for higher education in the United States. I could liquidate some of it (say, around 40 lakh) by March 2022. Since most of my funds have completed three years, I hope to be spared the short-term capital gains tax burden at a rate. 30% tax. However, please tell me how to calculate long term capital gains on the proceeds of my sale with a 20% index benefit. Will my bank help me with a capital gains statement?

This month I get a bonus lump sum amount of around 30 lakh. I am now 54 and would like to lock that into a good investment until I am 58, for my post retirement needs. Please suggest good funds for this amount. I was thinking of a mix of retirement funds, equal weight Nifty funds, and funds of funds. With a flat interest rate cycle, suggest somewhat aggressive funds with a proven track record.

RJ

If you think you will need the money for your daughter’s education in a year from now and have invested in equity or hybrid funds to achieve this goal, it would be wise to liquidate your holdings now instead of waiting until. ‘in March 2022.

Given the fairly high valuation levels in the stock market and the risks involved such as the global normalization of interest rates and QE, a correction in equity prices cannot be ruled out. If such a correction were to materialize within a year, you could lose a good chunk of your paper profits on your portfolio. You would also not have enough time to recover from the losses, as you have little time to reach your goal. If you have made good gains, then it would be wise to recognize profits at this point on your equity and hybrid funds and move the proceeds to safe avenues such as bank FDs.

How your products will be taxed will depend on the category of fund you have invested in. If you have equity-focused funds, your earnings on holdings for more than a year are considered long-term and taxed at a fixed rate of 10 percent (plus tax and surtax) with no indexation benefit. . You are, however, allowed to claim an exemption on earnings of up to 1 lakh per year, which you can deduct from your LTCG.

On debt funds, gains made on holdings beyond 36 months or three years are considered long-term. These gains are taxed at 20 percent (plus cease and surcharge) after taking into account the benefits of indexation on your acquisition cost.

On hybrid funds, if the exposure to equities exceeds 65%, gains are treated as gains on equities. Otherwise, the gains are treated as debt gains. If you invest via a broker or via a distributor or a platform, the statement of capital gains is available on request from the intermediary.

However, you may need to recheck the results. If you invest through more than one medium, you may need to compile the statement yourself. Your bank is unlikely to be of use to you.

If you invest this ₹ 30 lakh with the intention of withdrawing it in four years or earning a regular income from it, the retirement funds, Nifty Equal Weight Funds et al would be a very bad choice. Retirement funds are intended for younger people to accumulate large sums for their retirement through portfolios rich in stocks. It is not a good vehicle for preserving the capital that you expect to draw upon in retirement.

Smart funds in any form are again not suitable for any four-year goal, as any correction can dramatically reduce your capital and give you little time to recover before you retire. This sum is best placed in safe bank FDs (diversifying across multiple banks) or more secure debt fund categories such as PSU and bank debt funds or corporate bond funds. One category of debt funds that you can explore are 5-year target maturity funds that invest primarily in government securities. They would provide capital security with capital gains tax efficiency because you can enjoy the benefits of indexation.

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