Aspire Market Guides


In light of recent changes introduced in the 2024 budget, investors are faced with new challenges and opportunities in managing their portfolios.

Venkat, a 56-year-old investor, recently invested Rs. 60 lakhs in an Equity Savings Fund with the intention of withdrawing Rs. 30,000 per month through a systematic withdrawal plan (SWP).

However, due to the revised tax regulations, he may now have to pay approximately Rs. 28,200 in taxes annually after accounting for the increased deduction of Rs. 1,25,000 and the higher long-term capital gains tax rate of 12.5%.

ET Mutual Funds spoke to Aditya Agarwala, Co-founder and Head of Investment at Invest4edu, to provide insights into the implications of these tax changes.

He also highlighted the need to evaluate the potential forfeited gains when switching from equity funds to conservative hybrid debt funds, considering the average returns of 12% to 15% for equity funds and 8% to 10% for hybrid debt funds.

Query From Venkat

Q) I am 56 years old, and I invested about Rs. 60 Lakhs in an Equity Savings Fund with the aim of withdrawing around Rs. 30,000 per month under an SWP. Due to the recent 2024 budget, I may now have to pay about Rs. 28,200 in taxes after deducting Rs. 1,25,000 (12 * 30,000 – 1,25,000) @ 12.5% tax for LDCP.

If I switch the same fund to a conservative hybrid debt fund, the tax will fall under the slab rate, and I may not have to pay any tax if my total annual income is less than Rs. 6,00,000.Response from Aditya Agarwala, Co-founder and Head of Investment at Invest4edu

It is understandable that there will be an additional outflow in the form of long-term capital gains tax on equity mutual funds by 2.5% an increase from 10% to 12.5%, with an increase in deduction by Rs.25,000 from Rs.1,00,000 earlier.

In contrast, debt funds are subject to taxation at applicable slab rates without any holding period requirements.

However, the tax, whether long-term or short-term, is based on gains rather than the total amount of money withdrawn through the SWP.

As a result, the tax must be computed on the gains rather than the Rs. 30,000 mentioned here, which is the total amount withdrawn through the SWP.

Furthermore, when considering the 2.5% additional tax, one must also consider the gains that are forfeited in order to benefit from tax benefits by switching to conservative hybrid debt funds.

The average returns on equity funds are between 12% and 15%, whilst the average returns on conservative hybrid debt funds are between 8% and 10%. As a result, the calculation needs to be revisited.

If the outflow is still larger after taking into account the change in the tax rate and missing returns in the debt category, it will be sensible to switch to a conservative hybrid debt fund.

Although, he or she is getting close to retirement age and has previously taken an exposure to an equity fund, I have overlooked the risk assessment piece because it indicates that one has that level of risk appetite otherwise one can make the transition to an aggressive or conservative hybrid debt fund.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

If you have any mutual fund queries, message on ET Mutual Funds on Facebook/Twitter. We will get it answered by our panel of experts. Do share your questions on ETMFqueries@timesinternet.in alongwith your age, risk profile, and twitter handle.



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