Mutual Fund – Power of Smart Investing

SIP stands for Systematic Investment Plan. It is a method of investing in Mutual Funds (MFs) and involves regularly investing a fixed amount at predetermined intervals, generally monthly. SIPs are popular for letting investors invest in a disciplined manner and they also offer the chance to generate long-term wealth.

Mutual Fund returns are calculated by computing appreciation in the value of your investments over a period as compared to the initial investment. The Net Asset Value of Mutual Fund indicates its price and is used in calculating returns for your Mutual Fund investments. Using a MF Calculator, you can easily calculate the returns on your mutual fund investment

Mutual funds can be profitable investments, but success also depends on selecting the appropriate fund and maintaining a long-term perspective. However, profitability is influenced by factors like fund management and market conditions. It's important to understand that mutual funds are susceptible to market fluctuations, meaning their value may decline if underlying assets falter. Using a mutual fund calculator can help in monitoring the progress of the fund.

By investing in Mutual Funds, an investor can earn returns in the form of capital gains and dividend** income, which are taxable in the hands of the investor.

• A capital gain / loss arises when an investor sells any number of units of Mutual Funds
• An investor receives a dividend in proportion to the number of units held at the time of announcement of dividend, which is distributed by companies to investors when they earn a surplus.

Tax on Capital Gains Received from Mutual Funds:

The tax on capital gains depends on the period of holding (short-term or long-term) and the type of capital asset.

• In the case of Equity Mutual Funds, an investment tenure of less than 1 year (12 months) is a short-term investment. Any investment of over one year is a long-term investment
• In case of Debt and Hybrid Mutual Funds, an investment tenure of up to 2 years (24 months) is a short-term investment and any investment of over 2 years (24 months) is considered as long-term.

  *STT is applicable on these funds as >= 65% is invested in domestic equity shares BAF is considered here as in most cases BAF schemes maintain gross exposure of % or more to equity and equity related instruments.  

  Debt Oriented Fund (>= 65% in SEBI Regulated Debt and Money Market Instruments)

Key abbreviations:

(STCG – Short Term Capital Gains, LTCG – Long Term Capital Gains, ETF – Exchange Traded Fund, FoF – Fund of Funds, BAF – Balanced Advantage Fund, STT – Securities Transaction Tax) 

**Tax on Dividend Income received from Mutual Funds:

• From Apr 1, 2020, Mutual Fund dividends are taxable in the hands of investors. The dividend income is taxable under the head ‘income from other sources’ at the applicable income tax slab rate for the financial year

   

• Income Distribution-cum-Capital Withdrawal (IDCW) is a term used by Securities and Exchange Board of India (SEBI) to replace dividend option in Mutual Fund.

   

Disclaimer: The Union Budget 2024 has introduced significant changes to the taxation of Mutual Funds, aiming to simplify the tax structure and provide clarity for investors. These changes impact various types of Mutual Funds differently, altering how they are taxed over both the short and long term. Investors can learn how Mutual Funds are taxed if they are concerned that their returns from Mutual Funds will be reduced after paying taxes.

You can check your status through ICICI Bank digital platforms as below:

• iMobile app: log in to the app, move to the ‘Invest’ section and select ‘Mutual Funds’. Click on ‘My SIPs’ to view your portfolio details.
• Net Banking: Login, locate the ‘Investments and Insurance’ section and click the ‘Buy Mutual Funds’ section to check the status. You can also request a Consolidated Account Statement (CAS).

Based on Asset Class:

Based on Investment Goals:

Based on Structure:

Based on Risk: Specialised Mutual Funds:

 Selecting a Mutual Fund is a two-step process – selection of the Mutual Fund category and selection of a scheme in that category.

Select the Mutual Fund category on the basis of the investment objective, time horizon and risk tolerance.

After selecting the Mutual Fund category, choose a Mutual Fund scheme within that category on the basis of its relative performance vs benchmark & its category and consistency of performance. The other important aspect in the scheme selection process is the AMC track record, fund manager’s experience, scheme’s Asset Under Management (AUM) & Expense ratio.

Yes, mutual funds are a smart way to grow your money in the long-term. These are safe as they are regulated by SEBI and considered a good choice for long-term goals. However, they carry market risks. Choosing the right fund based on your goals and risk tolerance can make it a reliable investment option over time.

There’s no fixed amount, and you can start with as low as ₹500 per month in SIPs. Invest based on your income, savings goals, and risk appetite. You can start small and increase gradually as your comfort with mutual funds grows.

SIP is a small, regular investment made monthly, while a lump sum is a one-time, big investment. SIPs help in rupee cost averaging and suit salaried investors; lump sum suits those with surplus money and market timing knowledge.

No, mutual fund returns are not assured. They depend on market performance and fund type. Equity funds can be volatile, while debt funds are more stable. Always check the risk level and past performance before investing.

The expense ratio is the annual fee charged by the fund house for managing your money. Exit load is a small fee charged if you redeem your investment within a certain period. Both affect your overall returns.

Yes, you can redeem most mutual funds anytime. However, some funds may have a lock-in period or exit load. Always check the fund's terms before investing or redeeming, especially in ELSS or closed-ended schemes.