Dhaval Kapadia, Director, Portfolio Specialist, Morningstar Investment Adviser (India) answers queries in The Financial Express. They have been reproduced below.
If I do a monthly equity SIP, will I have to pay STT every month? And do I have to pay STT even at the time of the sale?
- Prakash Sharma
Securities transaction tax, or STT, will be deducted only on equity mutual fund units at the time of redemption / switch to other schemes / sale of units and not on their purchase (whether lumpsum or via a systematic investment plan, or SIP).
Since the fund where I have invested is not performing well, can I discontinue the SIP and keep the money invested for some time?
- Anand Patwardhan
Most asset management companies, or AMCs, mandate a minimum number of SIPs based on the SIP amount and frequency. Typically, the minimum number of SIPs ranges from 6 to 12. If the number of completed SIPs meets the minimum requirement, one can discontinue the SIPs and stay invested in the fund as long as one desires.
Some AMCs do offer a SIP Pause facility, wherein SIPs can be temporarily stopped or paused and restarted after a designated period, although the ‘Pause’ period may vary across AMCs that offer this facility.
Will I get one-time tax rebate of investment in equity-linked savings scheme? Is it mandatory to contribute to the scheme every year?
- Kaushal Sood
Investments in an equity linked savings scheme, or ELSS, can be made in lumpsum or via a systematic investment plan, or SIP, depending on the investor’s choice.
Tax benefits would be available only in the financial year in which the investment is made and only on the amount invested in that financial year.
Since an ELSS investment has a lock-in period of 3 years, investments made through the SIP mode would result in each SIP getting locked for a 3-year period starting from the date of the respective SIP.
The investment amount is deductible from your gross total income under Section 80C of income tax (up to a limit of Rs 1,50,000 per annum).
ELSS is categorised as an equity scheme for taxation purposes, so dividends as well as long-term capital gains (since the money is locked in for 3 years) are tax-free.
I want to invest Rs 1,000 every month for 10 years in SBI Gilt fund. Is it tax-free and how much return I can expect?
- KS Rao
Gilt funds invest in securities issued by the central and state governments. Returns from debt funds including gilt funds are normally composed of interest accrued or yield on instruments held and any capital appreciation or capital loss.
Capital appreciation or capital loss occurs due to movements in bond prices which are inversely related to interest rates. Hence if interest rates rise, bond prices would fall and vice-versa, with longer maturity bonds being more sensitive to movements in interest rates vis-à-vis shorter maturity bonds.
Gilt funds tend to hold medium to longer maturity papers, hence a larger proportion of their return is generated from capital appreciation or capital loss. Returns from gilt funds aren’t assured and vary based on the prevailing interest rate cycle and fund manager’s skills.
From a taxation perspective, short-term capital gains from debt funds (on units held for 36 months or less) are taxed based on the investor’s income tax bracket, whereas dividends are taxed at 28.84%. However, long-term capital gains from debt funds, including gilt funds, are taxed at 20% with indexation benefit.
My agent has asked me to give separate KYC for each folio. Has it become mandatory now to give KYC every year and for investment separately?
- Sanjay Kumar
KYC is one-time exercise while dealing in securities markets – once KYC is done through a SEBI registered intermediary (broker, DP, mutual fund, etc), you need not undergo the same process again when you approach another intermediary or make another investment.
