The LTCG Tax Impact

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The Union Budget 2018 reintroduced the long-term capital gains (LTCG) tax on earnings from equity stocks and mutual fund investments. The imposition of 10 percent capital gains tax on profit exceeding Rs 1 lakh made from the sale of equity mutual fund schemes units held for more than one year means that the gains earned before for holding these units for a full year will now be available. This also means that the taxpayers, salaried or non-salaried, looking to earn returns from the marketplace will finally have to face another tax burden.

However, if there a way from getting the advantage of the appreciation from the marketplace and yet not cover the LTCG tax? \The LTCG tax burden does not extend to unit-linked insurance plans (ULIPs). Customers holding on to ULIPs for the long term have earned 12-15 percent returns before. The development of low-cost ULIPs in the market coupled with the advantages of EEE (Exempt-Exempt-Exempt) tax structure has made them more attractive than equity linked savings scheme (ELSS),\ said Santosh Agarwal- Head of Life Insurance, Policybazaar.com.

But whether one chooses a ULIP or equity mutual funds, it's vital that the selection should not be a knee-jerk reaction. Clicking mutual fund consultants info perhaps provides cautions you could tell your aunt. Should people desire to discover further about site link, there are thousands of libraries you should pursue. There isn't any guarantee for the same to continue in the future, although uLIPs may be more tax effective today. \Current equity investors are worrying that they don't have an alternative to equity mutual funds to attain long-term financial objectives but ULIPs are the safe bet providing the same benefits,\ said Naval Goel, Founder & CEO, PolicyX.com

It is, therefore, a good choice for investors to do a comparison between ULIPs and equity mutual funds. However, advisers suggest that these two instruments ought to be a component of one's portfolio while developing one's overall budget.

Under investments are eligible for 80C deductions, ULIPs and ELSS are competing for goods. ULIPs, by not confronting any long-term capital tax (unlike ELSS), could seem relatively attractive from a moderate to long-term investment perspective. Taxation of insurance products is regulated by section 10(10D) wherein income is tax-free at the hands of the investor at the time of withdrawal. ELSS, however, will now see taxes if the long-term capital gain is worth Rs 1 lakh.

Anil Rego, Founder, and CEO, Right Horizons says he'd still advocate ELSs over ULIPs. \We would still recommend direct strategies of ELSS funds as they're much better than most ULIPs in terms of liquidity, investment expenses and also transparency. Besides, ULIPs have a 5 year lock-in interval while ELSS has 3-year lock-in, which is among the lowest among all Section 80C eligible investments. ELSS is also more transparent in terms of accessing information related to investment style, portfolio composition and past performance information,\ he explained.

ULIPS contrast with equity mutual funds (non-tax saving funds)

Harsh Gahlaut, CEO -- FinEdge told Moneycontrol pointed out that compared with mutual funds whose total expense ratios are closely regulated, ULIP's have a plethora of inbuilt charges that could impact your wealth creation from them in the long term. Furthermore, Mutual Funds have a track record of outperforming similar category ULIP funds over moderate to long-term timeframes.

\Post the budget, ULIP maturity proceeds may have become more tax-efficient than equity mutual funds, but switching from mutual funds to ULIPs as a consequence of this change would be a 'penny wise, pound foolish' move. In the long run, you are likely to create much more wealth by investing in high-quality mutual funds with long-term track records of performance,\ added Gahlaut.

Buying ULIPs allows one to invest in both equity and debt depending on the risk appetite without the tax burden. Be taught further on our partner wiki by visiting open in a new browser window. However, ULIPs are a mixture of investment and insurance. ELSS, on the other hand, is only a pure investment. For different ways to look at this, please consider peeping at: mutual fund consultants. Therefore, it's essential that investors should consider the item price, potential returns and goals before choosing a product. Taking investment decisions based on tax benefit or disadvantage has been short-sighted. It's always suggested to consult an experienced mutual fund advisor before taking a decision.