Consider shifting of AUM to performing funds even if LTCG is levied: Morningstar

By Dhaval Kapadia Morningstar Investment Adviser In the Union Budget 2018, the government introduced Long Term Capital Gains (LTCG) tax on listed equities and equity-oriented mutual funds, starting 1st April’18. Long-Term Capital Gains made on stocks or equity mutual fund units, in excess of Rs1 Lakh, will be taxed at 10 percent (plus cess) without indexation benefit, if sold after 31st March 2018. The holding period of more than 1 year is considered as long-term. On the other hand, holding period of one or less than one year is considered as a short- term and it continues to attract a tax of 15 percent (plus cess). Dividends received from equity-oriented mutual funds will also attract a tax of 10 percent (plus cess). However, long-term capital gains up to 31st January 2018 has been grandfathered i.e. any mark-to-market gains made till 31st January 2018 will not be taxed. It effectively means that, from taxation point-of-view, the cost of acquisition to be considered will be the stock’s price/ unit’s NAV as on 31st Jan’18; not the actual cost of acquisition. For e.g. an equity mutual fund unit was purchased on 1st Jan’17 for Rs30, as on 31st Jan’18 its NAV rose to Rs40. While selling this unit on 30th Jun’18 the NAV reaches, say Rs42, then the capital gains that can be taxed is Rs2 (42-40). Up till now, one could rebalance their equity portfolio, or trim exposure to an underperforming fund in favour of a fund that was expected

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