Mutual funds are preferred for the diversification of money that comes handy with it. Not only the returns but risks too are managed well. You may have to incur a tax liability at the time of redemption. This will be based on the applicable tax rates and be calculated on the rate/amount of mutual funds you see. The present rate of long term capital gains on equity mutual funds are over 1 lakh and taxed at 10% without indexation benefit.
Whenever you sell equity investments after one year of its purchase, the returns would be treated as long term capital gains. Long-term capital gains of over Rs 1 lakh is taxed at 10 per cent without the indexation benefit.
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However, if its planned well,tax can easily be saved on mutual funds returns. There are some significant ways to save tax on returns/gains in the following mentioned ways:
1) Investment in Equity funds if you can take risk:
Equity mutual funds are very risky in their real nature. However, invest in the highly rated equity mutual funds for the longest term. On one hand, it’s the capital appreciation and the other side, its tax free benefits upto a mark of 1 lac.
2) Investment in Debt funds if you have a risk averse attitude:
Debt funds are majorly meant for risk averse individuals who like to stable life.Investment in debt is favored for the advantage of indexation. Try to keep money into debt mutual funds for a not less than 36 months, along with the growth option.
3) Invest in Dividend schemes for steady stream of income:
If you are aged, and looking for steady income, then its advised to go for dividends option in mutual funds. This is the best source for regular income,not indefinitely. Infact, the returns could be lower too on dividend schemes compared to bank deposits in some cases.
This snapshot of investment avenues can help to reduce taxes remarkably!