Category: PERSONAL FINANCE

Mutual funds are highly liquid investments, which means an investor can choose to redeem – partly or fully – at their convenience. The only exception to this rule is the Equity Linked Saving Scheme or the ELSS fund, which has a lock-in period of three years before redemption.

Redemption, in layman language, is nothing but selling off your mutual fund investment. It is also referred to as exit from the scheme, and such an exit can be partial or complete depending on your preference.

Why do Investors Sell Mutual Funds?

There are various reasons why you might want to redeem or sell your mutual fund investment. Some of these include the following:

• If you need funds to meet your financial obligations
• If you are not satisfied with the returns offered by your scheme and you find other similar schemes offering better returns, you can switch to another scheme. Switching is, in effect, selling one fund and buying another
• If your investment strategy or mutual fund exit strategy has changed and you no longer wish to remain invested in the existing scheme
• If your risk profile has changed and you want to change your investments too
• If the market is in a downturn and you wish to protect your returns from erosion, you can sell off or switch your investment

How to Sell Mutual Funds?

Selling mutual funds is easy and quick. You can either opt for the online or offline mode to wholly or partly sell your mutual funds. Let’s have a look at both these modes:

The offline mode of selling mutual funds

Under the offline mode, you can either sell your mutual fund through a broker/distributor or directly approach the Asset Management Company (AMC). You would have to fill up a redemption request form stating the units to be redeemed and the details of your mutual fund scheme. Submit the form which the AMC would process. After the form is processed, redemption would be complete, and the AMC would transfer the redemption amount to your bank account. You can also request a cheque which would be mailed to your registered address.

Online mutual fund selling

This mode allows you to sell mutual funds online easily. The different ways in which you can sell or redeem mutual funds online are as follows:

1. Through the website or mobile app of the AMC
2. Through the website or mobile app of the Registrar and Transfer Agent (R & T Agent) through which you invested in the scheme
3. Through the website of an online broker from whom you invested in the scheme
4. Through your Demat or trading account, if you bought your mutual funds using the same

What is Exit Load?

In some cases, you might face an exit load when you sell mutual funds. Exit load is a charge levied on the redemption proceeds if you exit from the scheme within a specified time. This load would be deducted from the amount payable, and then the net amount would be credited to you.

For example, if a mutual fund scheme has an exit load of 1% on redeeming within a year and you exit the scheme before a year expires, the load would be applicable. In such cases, if, on selling the mutual fund, you have earned Rs 1 lakh, the net proceeds payable after the application of exit load would be Rs 99,000.

Tax Implications When Selling Mutual Funds

When selling a mutual fund scheme, you need to be aware of the possible tax implications that you might face. The tax implication depends on the type of scheme that you are redeeming and is applicable as follows:

• If you redeem equity mutual funds within 12 mth of investing, the returns earned would be short-term capital gains. Such gains would be taxed at 15% However, if you sell the fund after 12 mth, the gains would be called long-term capital gains. Such returns, up to Rs 1 lakh, would be tax-free. However, excess returns would be taxed at 10%
• If you sell debt mutual funds within 36 mth, you earn short-term capital gains Such gains are taxed at your slab rates. Mutual fund redemption after 36 mth is called long-term capital gains. Such gains are taxed at 20% with indexation benefits

Do’s and Don’ts When Selling Mutual Funds

While you can sell mutual fund units for your financial and strategic needs, here are some do’s and don’ts to keep in mind when going for a full redemption of mutual funds or partial redemption of mutual funds:

• If the market is falling, don’t be in a hurry to redeem. Mutual funds are suitable long-term investments. If you stay invested, the market volatility will stabilize, and your investment would give you good returns
• Do check the mutual fund exit load, if any. If you can, try and hold onto the scheme to avoid the mutual fund exit charges as it reduces your profits
• Do keep the tax implication in mind when redeeming
• Avoid selling during the lock-in period

Know how to sell mutual funds with exit loads or without and then choose the most suitable mode of selling. Understand the tax implications of the sale and disclose your returns when filing your income tax returns. Sell funds to meet your financial needs or to suit your changing investment strategies but don’t give up on your investment entirely. Invest in other schemes to diversify your portfolio and to create funds for your financial needs.

Filing Income Tax Returns (ITR) is your federal duty if you earn an income in the financial year exceeding Rs. 2.5 lakh. When mutual fund tax filing your returns, you have to declare incomes earned from various sources. If you have made specific investments that earn you tax deductions from tax on mutual fund dividends or exemptions, the same should be declared in the ITR.

Mutual fund investments also give you tax benefits if you choose the ELSS schemes. Moreover, when you redeem your investment and gain profit or suffer a loss, the same should also be reported on your tax return. Let’s understand how to declare mutual fund investment in ITR and the mutual fund tax implications.

Declaring Tax-Eligible Mutual Fund Investment

Equity Linked Saving Schemes, or ELSS, are equity-oriented mutual fund schemes with a distinct tax advantage. Investment into these schemes allows you a deduction from your taxable income to the tune of Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961, that you may declare under the heading ‘Chapter VI A deductions’ in your ITR.

Declaring Capital Gains on Mutual Fund Redemption

Whenever you redeem your mutual fund investments, any profit or loss incurred is termed as capital gain or capital loss, respectively. The detail of such gains or losses should also be declared in your ITR for tax on mutual fund redemption.

However, before jumping on how to declare capital gains tax mutual funds, here’s a quick look at how the gains are taxed:

• In the case of equity mutual funds, gains earned within 12 mth are called short-term capital gains. Such gains are taxed at 15%. On the other hand, gains earned after 12 mth are long-term capital gains. Such gains are tax-free up to Rs. 1 lakh, and gains exceeding the limit are taxed @10%.
• In the case of debt mutual funds, gains earned within 36 mth are called short-term capital gains. They are taxed at your income tax slab rates. However, gains earned after 36 mth are called long-term capital gains. They are taxed at 20% with indexation, a process through which an asset’s acquisition cost is inflated/adjusted to bring it at par with current rates, taking inflation into account.

How to Declare Capital Gains from Mutual Funds?

Now that you know how mutual fund gains are taxed and filing ITR for capital gains, it’s time for step two, which is how to declare mutual fund investment in ITR.

Since mutual fund returns are called capital gains, they are recorded under the heading ‘Income from capital gains.’ You need to mention the amount of gain incurred and the respective tax liability and tax treatment for mutual funds. 

Similarly, losses on redemption should be declared as capital losses under the same heading. You can use the losses to set off the profits earned from other mutual fund investments.

When calculating the amount of capital gains, you can deduct the brokerage paid to your mutual fund distributor or broker, if any, from the gains incurred.

Setting off of Capital Loss from Gains on Redemption of the Fund

If you have incurred a capital loss in the financial year, then on redeeming your mutual fund investments, you can use the loss to offset the profits earned on another scheme. This set-off is allowed in the same financial year as well as for eight subsequent financial years. To offset your capital losses against gains and reduce your subsequent taxation on mutual funds, you should file your ITR with the income tax department within the due date. Failure to do so would not allow you to carry forward your losses for set-offs from future capital gains statement for ITR.

Here are the rules of setting off losses against gains:

• Short term capital loss can be set off against either short term or long term capital gains
• Long term capital loss can be set off only against long term capital gains

ITR Form 2

You would have to file your returns in ITR Form 2 if you have:

• Capital gains or losses from a mutual fund redemption
• You are a salaried taxpayer or a Hindu Undivided Family (HUF)

In this ITR form for mutual funds filing capital gains in ITR, the details of the capital gains or losses suffered would have to be mentioned.

Suppose you incur capital gains or losses from an equity mutual fund on which Securities Transaction Tax (STT) has been paid. Then, in that case, you need to mention the individual details of every mutual fund scheme redeemed. 

You will also need to fill out Schedule 112A for each scheme that you have redeemed in a financial year and on which you have earned a capital gain or loss.

Conclusion

If you have invested in tax-saving ELSS schemes, you may claim a tax deduction when you declare your investment in your mutual fund Income Tax Returns (ITR). Moreover, any gains or losses incurred on redeeming an existing mutual fund investment should also be declared in the ITR for filing tax on mutual fund dividends. Understand thoroughly how to declare mutual fund investment in ITR so that you can comply with the rules of filing ITR for mutual funds and avoid penalties. Also, file your return on time to fulfil your duty and carry forward your losses to subsequent financial years if you have any.

Mutual funds are popular among individual investors for two reasons – diversification by investing in multiple stocks and professional management of funds. However, selecting the best mutual funds among a plethora of options can be tricky. To simplify this daunting task, we have listed the best mutual funds for the long term based on various parameters. Read on to know more.

What are the top 10 mutual funds with the highest returns?

Name	Sub-Category	AUM (Rs. in cr.)	3Y CAGR (%)	5Y CAGR (%)	Expense Ratio (%)	Volatility (%)	Minimum Lumpsum (Rs.)	Absolute Returns – 1Y (%)	3Y Avg Annual Rolling Return (%)
ICICI Pru Overnight Fund	Overnight Fund	10,633.83	125.16	0.00	0.10	0.12	100.00	6.49	329.30
Quant Small Cap Fund	Small Cap Fund	8,075.14	47.73	30.94	0.77	14.69	5,000.00	42.07	65.36
ICICI Pru Infrastructure Fund	Sectoral Fund – Infrastructure	2,917.13	46.65	22.28	1.49	9.85	5,000.00	41.90	38.92
Sundaram LT Micro Cap Tax Adv Fund-Sr VI	Equity Linked Savings Scheme (ELSS)	38.41	45.69	20.85	1.16	10.85	0.00	31.37	44.45
ICICI Pru Bharat 22 FOF	FoFs (Domestic) – Equity Oriented	198.75	45.49	16.32	0.08	11.76	5,000.00	48.04	31.67
Sundaram LT Tax Adv Fund-Sr III	Equity Linked Savings Scheme (ELSS)	34.11	44.83	21.88	1.18	10.46	0.00	32.08	41.81
Sundaram LT Tax Adv Fund-Sr IV	Equity Linked Savings Scheme (ELSS)	21.66	44.66	21.68	1.18	10.38	0.00	32.33	40.69
Quant Infrastructure Fund	Sectoral Fund – Infrastructure	930.50	44.59	28.01	0.77	15.53	5,000.00	19.51	52.27
HDFC Infrastructure Fund	Sectoral Fund – Infrastructure	856.45	44.52	16.80	1.68	13.35	100.00	46.67	32.17
SBI Magnum Children’s Benefit Fund-Investment Plan	Solution Oriented – Children’s Fund	1,118.71	44.48	0.00	0.94	8.16	5,000.00	25.31	0.00

Note: The information is dated 1st October 2023. The parameters used to filter the top 10 mutual funds in India for 2023 across assets for the long term on the Tickertape Mutual Fund Screener are mentioned below.

Top 10 equity mutual funds in India

Also known as growth funds, equity funds invest majorly in stocks of companies. These funds can further be classified based on market capitalisation – large-cap, mid-cap, small- or micro-cap funds. Equity mutual funds are also classified based on the sectors that they invest in, which can be infrastructure, IT, and so on. Following is the list of the top 10 equity funds for long-term investment based on the 5-yr CAGR.

Name	Sub-Category	AUM (Rs. in cr.)	3Y CAGR (%)	5Y CAGR (%)	Expense Ratio (%)	Volatility (%)	Minimum Lumpsum (Rs.)	Absolute Returns – 1Y (%)	3Y Avg Annual Rolling Return (%)
Quant Small Cap Fund	Small Cap Fund	8,075.14	47.73	30.94	0.77	14.69	5,000.00	42.07	65.36
ICICI Pru Infrastructure Fund	Sectoral Fund – Infrastructure	2,917.13	46.65	22.28	1.49	9.85	5,000.00	41.90	38.92
Sundaram LT Micro Cap Tax Adv Fund-Sr VI	Equity Linked Savings Scheme (ELSS)	38.41	45.69	20.85	1.16	10.85	Not allowed	31.37	44.45
Sundaram LT Tax Adv Fund-Sr III	Equity Linked Savings Scheme (ELSS)	34.11	44.83	21.88	1.18	10.46	Not allowed	32.08	41.81
Sundaram LT Tax Adv Fund-Sr IV	Equity Linked Savings Scheme (ELSS)	21.66	44.66	21.68	1.18	10.38	Not allowed	32.33	40.69
Quant Infrastructure Fund	Sectoral Fund – Infrastructure	930.50	44.59	28.01	0.77	15.53	5,000.00	19.51	52.27
HDFC Infrastructure Fund	Sectoral Fund – Infrastructure	856.45	44.52	16.80	1.68	13.35	100.00	46.67	32.17
Sundaram LT Micro Cap Tax Adv Fund-Sr IV	Equity Linked Savings Scheme (ELSS)	38.41	44.48	20.67	1.32	11.08	Not allowed	31.49	42.56
Nippon India Small Cap Fund	Small Cap Fund	36,539.55	44.17	26.64	0.72	11.16	Not allowed	38.98	45.87
Sundaram LT Micro Cap Tax Adv Fund-Sr V	Equity Linked Savings Scheme (ELSS)	30.87	43.94	20.23	1.19	10.81	Not allowed	29.72	43.04

Note: The information is dated 1st October 2023. The parameters used to filter the top 10 equity mutual funds in India for 2023 for the long term on the Tickertape Mutual Fund Screener are mentioned below.

• Category > Equity
• Plan: Growth
• 3-yr CAGR: Set from highest to lowest

Top 10 debt mutual funds in India

Debt funds invest in fixed-income instruments like corporate bonds, government bonds, corporate debt securities, and others. These are known for their low cost, relatively stable returns, and higher liquidity. Following is the list of the top 10 debt funds for the long term based on the 5-yr CAGR.

Name	Sub-Category	AUM (Rs. in cr.)	3Y CAGR (%)	5Y CAGR (%)	Expense Ratio (%)	Volatility (%)	Minimum Lumpsum (Rs.)	Absolute Returns – 1Y (%)	3Y Avg Annual Rolling Return (%)
ICICI Pru Overnight Fund	Overnight Fund	10,633.83	125.16	0.00	0.10	0.12	100.00	6.49	329.30
Bank of India Credit Risk Fund	Credit Risk Fund	153.36	41.52	-3.81	1.22	0.37	5,000.00	5.90	44.12
Aditya Birla SL Medium Term Plan	Medium Duration Fund	1,890.60	13.56	9.02	0.87	1.02	1,000.00	7.92	14.38
Bank of India Short Term Income Fund	Short Duration Fund	75.99	11.91	4.09	0.60	7.25	5,000.00	13.86	10.72
UTI Credit Risk Fund	Credit Risk Fund	413.70	11.50	-0.62	0.86	0.71	500.00	7.76	6.16
Baroda BNP Paribas Credit Risk Fund	Credit Risk Fund	165.06	11.45	7.92	0.79	0.65	5,000.00	8.00	10.80
Franklin India ST Income Plan	Short Duration Fund	408.95	10.44	5.59	0.04	0.84	Not allowed	9.35	6.98
UTI Dynamic Bond Fund	Dynamic Bond Fund	467.72	9.90	6.57	0.70	0.92	500.00	6.94	9.97
Nippon India Strategic Debt Fund	Medium Duration Fund	126.42	9.81	-0.33	1.38	1.52	5,000.00	7.77	4.73
Nippon India Credit Risk Fund	Credit Risk Fund	1,016.76	9.53	4.88	0.91	0.76	500.00	8.64	7.41

Note: The information is dated 1st October 2023. The parameters used to filter the top 10 debt mutual funds in India for 2023 for the long term on the Tickertape Mutual Fund Screener are mentioned below.

• Category > Debt
• Plan: Growth
• 3-yr CAGR: Set from highest to lowest

Top 10 hybrid mutual funds in India

Hybrid funds invest in more than one asset class – equity, debt, and others depending on the investment objective. These funds invest across asset classes to diversify the portfolio. Following is the list of the top 10 hybrid funds for the long term based on the 5-yr CAGR.

Name	Sub-Category	AUM (Rs. in cr.)	5Y CAGR (%)	3Y CAGR (%)	Expense Ratio (%)	Volatility (%)	Minimum Lumpsum (Rs.)	Absolute Returns – 1Y (%)	3Y Avg Annual Rolling Return (%)
Quant Multi Asset Fund	Multi Asset Allocation Fund	936.86	23.24	29.21	0.67	9.39	5,000.00	15.55	35.97
Quant Absolute Fund	Aggressive Hybrid Fund	1,335.08	21.56	28.14	0.75	10.33	5,000.00	11.09	34.87
Bank of India Mid & Small Cap Equity & Debt Fund	Aggressive Hybrid Fund	462.92	18.69	28.15	1.55	9.38	5,000.00	28.11	29.96
ICICI Pru Equity & Debt Fund	Aggressive Hybrid Fund	24,990.09	17.93	31.58	1.12	6.99	5,000.00	25.11	27.43
ICICI Pru Multi-Asset Fund	Multi Asset Allocation Fund	21,705.11	17.27	29.80	1.01	5.91	5,000.00	24.68	26.25
HDFC Balanced Advantage Fund	Balanced Advantage Fund	60,640.94	16.76	30.84	0.84	7.02	100.00	28.49	25.12
Kotak Equity Hybrid Fund	Aggressive Hybrid Fund	4,049.59	16.54	23.25	0.47	6.47	100.00	17.85	23.32
Baroda BNP Paribas Aggressive Hybrid Fund	Aggressive Hybrid Fund	863.30	16.07	20.30	0.60	7.61	5,000.00	19.05	18.94
Edelweiss Aggressive Hybrid Fund	Aggressive Hybrid Fund	822.90	15.86	24.50	0.57	7.18	5,000.00	23.62	22.05
DSP Equity & Bond Fund	Aggressive Hybrid Fund	8,121.32	15.17	19.85	0.79	7.23	100.00	20.32	18.00

Note: The information is dated 1st October 2023. The parameters used to filter the top 10 hybrid mutual funds in India for 2023 for the long term on the Tickertape Mutual Fund Screener are mentioned below.

• Category > Hybrid
• Plan: Growth
• 5-yr CAGR: Set from highest to lowest

Best mutual funds for SIP

Investing in mutual funds can be done in two ways – lump sum or systematic investment plan (SIP). Mutual funds SIP allows you to invest a fixed amount systematically on a weekly, monthly or quarterly basis. Some mutual funds also allow you to increase the fixed amount of investment. Here’s a list of the top 10 mutual funds for SIP to invest in 2023.

Best tax-saving mutual funds

An Equity-Linked Savings Scheme (ELSS) is the only type of mutual fund that offers tax benefits. They are diversified equity funds. Section 80C of the Income Tax Act, 1961 allows you to claim a tax deduction on the amount that you invest in ELSS. The maximum deduction you can claim in this regard is Rs. 1,50,000 per year, subject to the overall permissible limit of the section. Here’s more about tax-saving mutual funds and a list of the top 10 ELSS mutual funds.

What are mutual funds?

Mutual funds pool money from several investors and invest in securities like stocks, bonds, debt instruments, and other assets. These are managed by professionals who allocate funds based on the investment objective, which can be long-term wealth creation, tax saving, etc.

What is a mutual fund NAV?

Mutual fund NAV (Net Asset Value) is the price per unit of the scheme. Similar to how you pay the stock price to buy one share, you pay the NAV to buy one unit of a mutual fund. However, the NAV doesn’t change throughout the trading hours like a stock price; it is calculated at the end of the day after taking into consideration the closing prices of all underlying assets. The NAV is also adjusted for the expenses involved in the management, administration, distribution, and other factors.

Types of mutual funds to invest

Based on the underlying assets, mutual funds are classified into various types – equity funds, debt funds, and hybrid funds being the broad ones. Selecting one of these depends on various factors like your investment objective, risk appetite, and return expectations.

How to select the top-performing mutual funds in India?

1. Consider the fund’s track record: Looking at its historic performance gives insights into how it has fared over the years, even when the markets were down.

2. Check the fund’s Alpha value: Alpha indicates whether the fund has generated returns in excess of a benchmark.

3. Check the expense ratio: Expressed in terms of a percentage of the fund’s returns, the expense ratio is the fee charged by the AMC to manage your investment.

4. Investment objective: Map a fund with the objectives of a mutual fund scheme to see if it is in line with your financial goals.

5. Performance of the fund manager: Your investments in a mutual fund are managed by the fund manager. As such, their expertise has a significant bearing on how the fund performs.

Documents required for mutual fund investment

Following are some documents required for mutual fund investment:

• Application form: You would need one form to open a mutual fund account and another if you want to opt for an SIP plan. In addition, you will be required to submit an ECS form if you are opting for an electronic transfer from your bank account. Some fund houses may also ask you to fill up other forms like a risk profile form.
• KYC compliance: You have to verify your PAN for the Know Your Customer (KYC) norms to invest in mutual funds. You can register yourself for KYC via CDSL Ventures Limited (CVL). If you are KYC-compliant, you are required to submit the KYC acknowledgement letter or copy. But if you are not, you need to furnish the following documents:

• KYC form
• Passport-sized photograph
• Identity proof: PAN with photograph, passport, Aadhaar, driving licence or voter ID
• Address proof: Aadhaar, passport, driving licence, voter ID card, registered lease, sale agreement of residence, ration card, flat maintenance bill, insurance copy, utility bills for the last three months.

Tax on mutual funds

Investors are rewarded in two ways when they invest in mutual funds: dividends and capital gains. Both of them are subject to taxes. 

• Tax implications on dividends

Dividends received from mutual funds are subject to Tax Deduction at Source (TDS) @ 10% if the dividend income from a mutual fund is more than Rs. 5,000. The dividend is also subject to taxation according to the tax slab of the assessee, i.e., the dividend earned through mutual funds is added to the taxable income, and tax is calculated according to the tax slab the investor belongs to. 

• Tax implications on capital gains

Taxes vary significantly depending upon the type of capital gains – short-term or long-term – and the type of mutual fund – equity or debt. 

The key factors that determine the tax on mutual funds are the type of fund, type of gain generated, and holding period. To learn about more tax on mutual funds, read Mutual Fund Taxation: How Different Mutual Funds Are Taxed and Other Benefits.

Conclusion

Filtering the top-performing mutual funds in India can be a time-consuming process but not an impossible task. In fact, Tickertape Mutual Fund Screener is built with several filters to help you find mutual fund schemes suitable to your portfolio. Once you screen mutual funds, you can further evaluate them using Tickertape Mutual Fund Pages that host comprehensive information on the respective mutual fund, its manager, peers, and more.