1. An investor can always redeem all 1-year old qualifying units till 31st March'18 for tax-exempt LTCG applicable currently.
2. Further, for the non-qualifying units purchased till 31st Jan'18, their purchase NAVs will get reset to 31st Jan'18 (grandfathered) for LTCG calculation, whenever redeemed after 1 year from purchase.
3. Therefore, these units could be redeemed (and systematically repurchased)even from 1st April'18, to utilize the 1 lakh tax exemption as well as cost-averaging them.
4. Where the portfolio remains significantly large, even after implementing these strategies, an investor could even think of redesigning his portfolio for optimizing both his LTCG and STCG each year, keeping their tax differential of 5% and LTCG tax exemption of 1 lakh in mind.
5. Because of the grandfathering clause, LTCG from any date of purchase up to Jan 31st, 2018 will always remain tax-free, provided you sell any time after 365 days from the date of purchase.
6. So, there is no benefit in redeeming units now and repurchasing them during this financial year, as the grandfathered LTCG is always tax-free.
7. From the next financial year onwards, you could systematically redeem and purchase MF units to utilize the new LTCG limit of 1 lakh too, by calculating it after the grandfathered date of 31st Jan2018.
8. Remember that 1lakh LTCG tax exemption is on booked profits only, i.e. after funds are redeemed.
9. There is no need to panic because ALL LTCG on equity mutual funds is, in any case, FULLY EXEMPT during this ENTIRE financial year.
10. Rather, you should be utilizing the new LTCG limit for NEXT financial year, by calculating the LTCG earned AFTER the grandfathered date of 31st Jan'18.
11. Systematic redemption and reinvestment to utilize this dispensation, instead of lumpsum action, will enable cost-averaging the purchases for continuing this exercise.
12. As the STCG tax and LTCG tax has a differential of only 5%, any specific fund, which shows an abnormal run-up with windfall gains, should also be redeemed in the short-term itself, as there's no limit for STCG, which can even enable offsetting STCL during the year.
2. Further, for the non-qualifying units purchased till 31st Jan'18, their purchase NAVs will get reset to 31st Jan'18 (grandfathered) for LTCG calculation, whenever redeemed after 1 year from purchase.
3. Therefore, these units could be redeemed (and systematically repurchased)even from 1st April'18, to utilize the 1 lakh tax exemption as well as cost-averaging them.
4. Where the portfolio remains significantly large, even after implementing these strategies, an investor could even think of redesigning his portfolio for optimizing both his LTCG and STCG each year, keeping their tax differential of 5% and LTCG tax exemption of 1 lakh in mind.
5. Because of the grandfathering clause, LTCG from any date of purchase up to Jan 31st, 2018 will always remain tax-free, provided you sell any time after 365 days from the date of purchase.
6. So, there is no benefit in redeeming units now and repurchasing them during this financial year, as the grandfathered LTCG is always tax-free.
7. From the next financial year onwards, you could systematically redeem and purchase MF units to utilize the new LTCG limit of 1 lakh too, by calculating it after the grandfathered date of 31st Jan2018.
8. Remember that 1lakh LTCG tax exemption is on booked profits only, i.e. after funds are redeemed.
9. There is no need to panic because ALL LTCG on equity mutual funds is, in any case, FULLY EXEMPT during this ENTIRE financial year.
10. Rather, you should be utilizing the new LTCG limit for NEXT financial year, by calculating the LTCG earned AFTER the grandfathered date of 31st Jan'18.
11. Systematic redemption and reinvestment to utilize this dispensation, instead of lumpsum action, will enable cost-averaging the purchases for continuing this exercise.
12. As the STCG tax and LTCG tax has a differential of only 5%, any specific fund, which shows an abnormal run-up with windfall gains, should also be redeemed in the short-term itself, as there's no limit for STCG, which can even enable offsetting STCL during the year.
13. As against windfall gains earned through STCG, the exit load of 1% would turn out to be minuscule.
14. This windfall gain should be reinvested in an ELSS fund to avail Sec 80C benefits, if it qualifies, for double benefits (or in an equity hybrid fund if not a taxpayer).
15. The principal amount may be reinvested in the same fund, systematically spreading it for cost-averaging, if it is still suitable to your overall portfolio, for similar exercise later.
19. MFs statements will get generated AFTER redemption takes place, hence noting down the NAV of 31st Jan'18 for your own funds just now, as a one-time exercise, instead of having to dig them out every time, will help you to plan your redemption exercise to avail the LTCG exemption fairly well in advance, on a DIY basis, for the next year as well as any subsequent years, till all the units purchased before 31st Jan'18 get fully redeemed.
15. The principal amount may be reinvested in the same fund, systematically spreading it for cost-averaging, if it is still suitable to your overall portfolio, for similar exercise later.
16. Growth option is more amenable for redeeming units to avail the 1 Lakh LTCG limit from the new financial year, besides flexibility in reinvesting the redeemed amount systematically for cost-averaging, as the same exercise would be repeated each year.
17. Long-term investors who don't want to redeem their existing units of several years can continue to hold them.
18. They should note down the NAVs of their existing funds as on 31st Jan'18, which will be considered as the reset purchase date (presuming it is higher than the actual purchase dates of units) for calculating LTCG, WHENEVER they finally redeem them in future.19. MFs statements will get generated AFTER redemption takes place, hence noting down the NAV of 31st Jan'18 for your own funds just now, as a one-time exercise, instead of having to dig them out every time, will help you to plan your redemption exercise to avail the LTCG exemption fairly well in advance, on a DIY basis, for the next year as well as any subsequent years, till all the units purchased before 31st Jan'18 get fully redeemed.
20. A limitation in this strategy is that they would be foregoing the LTCG tax exemption limit of 1 lakh allowed every year, which is their call to take, as it lapses automatically.
21. Preferably, they should, at least, avail the tax-exempt facility through annual redemption to that extent each year, and reinvest the redeemed amount if it is not required, for maintenance of the corpus.
22. ELSS will continue to enjoy the above dispensation as well as Sec 80C benefits, and remains the best of the qualifying instruments, being market-linked, for the long-term.
25. From 1-4-18, dividend will attract 10% LTCG tax for ANY amount, but Growth option will allow automatic deduction of 1 lakh gain each year, upon redemption, if availed, else no tax has to be paid during the accumulation and growing years.
21. Preferably, they should, at least, avail the tax-exempt facility through annual redemption to that extent each year, and reinvest the redeemed amount if it is not required, for maintenance of the corpus.
22. ELSS will continue to enjoy the above dispensation as well as Sec 80C benefits, and remains the best of the qualifying instruments, being market-linked, for the long-term.
23. Growth option is more amenable for redeeming units to avail the 1 Lakh LTCG limit every financial year, besides flexibility in reinvesting the redeemed amount systematically for cost-averaging, as the same exercise could be repeated each year.
24. Both LTCG and Dividend remain tax-exempt for this financial year.25. From 1-4-18, dividend will attract 10% LTCG tax for ANY amount, but Growth option will allow automatic deduction of 1 lakh gain each year, upon redemption, if availed, else no tax has to be paid during the accumulation and growing years.
26. As LTCG is fully exempt for this financial year, you can redeem all the qualifying units of Dividend Reinvestment option funds before 31st March'18 without any tax.
27. You can invest the proceeds in Growth option systematically, for cost-averaging, or lumpsum, and also activate SIPs in it, while stopping existing SIPs in the Dividend Reinvestment option.
28. As your existing short-term units that have accumulated till 31st Jan'18 are also grandfathered for gains accrued till that date, you can keep redeeming them in subsequent financial years too once they become one year old, and avail 1 lakh LTCG tax exemption per year as well as lesser tax outgo, till they all get redeemed, although any dividend declared by the fund before the full redemption would get taxed at 10%.
29. Alternatively, you can even redeem these short-term units in this financial year for STCG, if it suits your purpose of ofsetting it against any STCL which you might have incurred in other investments.
30. Starting the next financial year investments in Growth option is, therefore, advisable as already explained above.
27. You can invest the proceeds in Growth option systematically, for cost-averaging, or lumpsum, and also activate SIPs in it, while stopping existing SIPs in the Dividend Reinvestment option.
28. As your existing short-term units that have accumulated till 31st Jan'18 are also grandfathered for gains accrued till that date, you can keep redeeming them in subsequent financial years too once they become one year old, and avail 1 lakh LTCG tax exemption per year as well as lesser tax outgo, till they all get redeemed, although any dividend declared by the fund before the full redemption would get taxed at 10%.
29. Alternatively, you can even redeem these short-term units in this financial year for STCG, if it suits your purpose of ofsetting it against any STCL which you might have incurred in other investments.
30. Starting the next financial year investments in Growth option is, therefore, advisable as already explained above.
31. The 1 lakh exemption per year is for LTCG of all equity investments, including shares and mutual funds, AGGREGATED TOGETHER , irrespective of their number and types.
32. You could explore possibilities of staggering your full redemption in appropriate installments every year, to avail full annual LTCG tax exemption EACH YEAR , of course depending upon your goal requirement, either after the accumulation or from a few years earlier.
33. You can also utilize the LTCG to offset any LTCL of other categories of investments during the year, if so.
34. There should be no real urgency to review your original retirement strategy due to LTCG as per existing rules, as LTCG exemption and tax will apply only on actual monthly SWPs in each financial year, withdrawn by you for meeting retirement expenses.