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What are the tax implications of mutual funds?

What are the tax implications of mutual funds?
by 5paisa Research Team 14/10/2021

Mutual funds deliver tax-efficient returns to their investors and all of these mutual fund schemes are taxed differently.

Mutual funds are known as one of the tax-efficient investment instruments as compared to bank fixed deposits. Fixed deposit interest is taxed as per the income slab rates, which is even worse for higher income tax brackets.

Mutual funds offer various types of schemes such as equity-oriented schemes, debt-oriented schemes, hybrid schemes, and solution-oriented schemes among others. All of these schemes deliver different returns based on their risk meter.

The equity-oriented mutual fund schemes have high risk, debt-oriented mutual funds have low risk and hybrid schemes have moderate risk as they are a combination of both equity and debt. These schemes are further divided into various categories. As per SEBI, the equity-oriented scheme is divided into 10 categories, the debt-oriented scheme is divided into 16 categories and hybrid schemes are divided into 6 categories.

All of these schemes are taxed differently. Let’s look at how different categories of mutual funds are taxed:

1. Equity-oriented schemes:

  • Short term Capital Gains (STCG): The capital gains arising within 12 months or one year are known as Short Term Capital Gains. These capital gains are taxed at the rate of 15%.

  • Long Term Capital Gains (LTCG): The capital gains arising after 12 months or one year are known as Long Term Capital Gains. The capital gains are exempted up to Rs 1,00,000 and if capital gains exceed the amount Rs 1,00,000 then they will be taxable at the rate of 10% without indexation.

2. Debt-oriented schemes:

  • Short Term Capital Gains (STCG): The capital gains arising within 36 months or three years are known as Short Term Capital Gains. These capital gains are taxed as per the income tax slab rate of the individual.

  • Long Term Capital Gains (LTCG): The capital gains arising after 36 months or 3 years are known as Long term Capital Gains. These capital gains are taxed at the rate of 20% with the benefit of indexation.

3. Hybrid Schemes: The hybrid funds are taxed a little different as compared to other mutual fund schemes as they are a combination of equity as well as debt. The taxation of hybrid funds is dependent on the exposure of equity in the scheme. If the equity exposure exceeds 65%, then it will be an equity-oriented hybrid scheme and if exposure of equity does not exceed 65%, then it will be a debt-oriented hybrid scheme. The equity-oriented hybrid scheme will be taxed the same as any other equity-oriented scheme. Similarly, a debt-oriented scheme will be taxed the same as any other debt-oriented mutual fund scheme as mentioned above in the article.

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Mindtree beats street estimates with Q2 show but analysts now have a clear sell rating

by 5paisa Research Team 14/10/2021

Mindtree Ltd continues to bask in the glory of its stellar performance in the July-September quarter that saw the mid-tier software services company beat street estimates while churning out double-digit sequential growth in both profit and revenue.

The company reported a net profit of Rs 398.9 crore for the quarter ended September 30, up 16.2% on a sequential basis and 57.2% on a year-on-year basis. Its revenue shot up to Rs 2,586.2 crore, recording a growth of 12.9% over Q1 and 34.3 % over the same quarter last year.

Mindtree also marginally improved its operating margins, both sequentially and year-on-year, to 20.5% despite aggressive investments to expand its domain capabilities as well as its geographical presence.

The stock has been on fire, and is currently trading almost four times above its 52-week low while its market valuation topped $10 billion (Rs 76,000 crore). On Thursday morning, the stock jumped as much as 11% to almost Rs 4,799 apiece, before cooling off. The company had declared results after market hours on Wednesday.

The company’s investors are enjoying a good run but analysts now suggest they relook at their strategy by pruning their stake to re-enter the stock when it corrects.

Several brokerage houses have assigned a target price ranging from Rs 3,500-4,500, even after a few revised upwards their numbers. This factors in the heady rise in the stock price exceeding the positive overperformance in terms of financial numbers.

UBS, for instance, has a “sell” rating on the stock and has a target price of Rs 3,550. Goldman Sachs, too, maintains a “sell” rating due to high rich valuations. It has a target price of Rs 3,784 for Mindtree.

Other key details:

1) Number of active clients have declined year on year to 263 as of September 30, 2021, but this is not necessarily a bad thing as it seems the firm has cut back on clients with contracts below $1 million.

2) The number of contracts worth $20 million or more remained same at 10. The firm added five clients in the $10-million-plus contract value and added three clients with contract value of $5-10 million last quarter.

3) North America still accounts for bulk of the business but the dependence has declined with revenue from the region declining to 72.8% from 77% earlier. The UK and Ireland have seen an upside.

4) The company derived close to half of its business from communications, media and technology industry vertical, followed by BFSI segment.

5) Attrition levels have risen to 17.7% on a trailing 12-month basis from under 14% even as overall headcount has increased to 29,732.

6) The board of directors declared an interim dividend of Rs 10 per equity share.

Management Commentary:

Debashis Chatterjee, chief executive officer and managing director at Mindtree, said the company’s revenue in the second quarter was $350.1 million, up 12.7% sequentially and 34.1% year-over-year. This was its highest YoY growth for a quarter in a decade.

Chatterjee said the company maintained its EBITDA margin at 20.5% while making aggressive investments in further expanding its domain, digital and leadership capabilities, geographic footprint, and hyperscaler partnerships.

“The broad-based momentum and growth outlook across all verticals, service lines and geographies attest to our operational rigor and sharp focus on being a trusted business transformation partner to our clients,” he said.

“We are well-positioned to capitalize on the strong demand environment and deliver profitable, industry-leading growth in FY22,” he added.

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New investors are joining the SIP bandwagon. Are you a part of it?

New investors are joining the SIP bandwagon. Are you a part of it?
by 5paisa Research Team 14/10/2021

SIP through the investment route has crossed Rs 10,000 mark for the first time in September 2021.

One of the most convenient ways of investing in a mutual fund is through a systematic investment plan or SIP as it is commonly known. It’s an investment plan wherein you could invest a fixed amount in a mutual fund scheme at a defined frequency for example every month, instead of making a lump-sum investment. SIP is more like a recurring deposit where you deposit a small amount every month in a bank. It gives an investor the benefit of rupee cost averaging.

Analysis of the data shows that more and more investors are opting for the SIP route of investment rather than the lumpsum investment. Total inflows to equity inflows in September 2021 remained at Rs 8677 crore, while investment through the SIP route came at Rs 10351 crore. This shows that there has been net redemption from lumpsum investors.

The table shows the monthly inflows and number of SIP accounts for the current financial year. 

This is the table code -

Month  

Total No. of outstanding SIP Accounts  

No. of New SIPs registered  

No. of SIPs discontinued/ tenure completed  

SIP AUM   

SIP Contribution  

₹ crore  

 ₹ crore  

Sep-21  

448.98  

26.8  

10.26  

5,44,976  

10,351  

Aug-21  

432.44  

24.92  

9.75  

5,26,883  

9,923  

Jul 21  

417.27  

23.79  

8.55  

5,03,597  

9,609  

Jun-21  

402.03  

21.3  

7.62  

4,83,964  

9,156  

May 21  

388.36  

15.48  

6.66  

4,67,366  

8,819  

Apr-21  

 379.54  

 14.08  

 7.08  

4,34,742  

8,596  

Source: AMFI.

The table clearly shows the continuous rise of SIP investors. It has increased from Rs 8596 crore at the start of the current year to Rs 10351 crore by the end of September 2021. This shows an increase of 20% in last six months. SIP AUM has increased by more than 25% in the same period.  The best part is the number of SIP accounts has also seen a continuous increase, which means more and more new investors are joining the SIP bandwagon.

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Multibagger Alert: This chemical process equipment manufacturer has quadrupled investor wealth in the past year!

Multi-bagger Stocks
by 5paisa Research Team 14/10/2021

HLE Glascoat has turned multi-bagger during the past year and is now trading near lifetime highs.

Leading manufacturer of process equipment, HLE Glascoat has given investors stellar returns of 380% over the last year. The share price of the company stood at Rs 1398.45 on October 13, 2020, and since then, the stock has more than quadrupled investor wealth on the back of strong financial performance and growth prospects.

In Q1FY22, HLE Glascoat’s top line grew by 48.34% YoY to Rs 124.24 crore from Rs 83.75 crore in Q1FY21. The filtration, drying and other equipment segment reported revenue of Rs 65.43 crore (52 per cent of revenue) and saw growth of 39.99 per cent on a YoY basis, while, glass lined equipment segment reported revenue of Rs 57.13 crore (46% of revenue), and saw growth of 99.87% on a YoY basis. The company reported strong operational performance with PBIDT and PAT growing 63.11% and 114.04% YoY respectively.

HLE Glascoat is engaged in the specialized business of manufacturing chemical process equipment which is focused on filtration and dryers. It has seen healthy demand from key-end user industries (pharmaceutical, speciality chemicals, agrochemicals), while also taking periodical capacity enhancements and has managed to increase its scale by 19% and 14% in FY20 and FY21, respectively. This coupled with the debottlenecking of operations, technological up-gradation and synergies from mergers have resulted in an improvement in operating profitability, which has translated to wealth creation for its shareholders.

Looking ahead the production linked incentive scheme for the API units to promote domestic manufacturing, attain self-reliance and reduce import dependence will benefit a company such as HLE Glascoat in the long run and hence the prospects of the company remain promising.

HLE Glascoat is the preferred supplier and technology leader having over 60% share in the Indian Filtration and Drying market. The company is also the second-largest player in the Indian Glass Lined (GL) equipment market with a nearly 30% market share.

At noon on Thursday, the stock is trading at Rs 7020, up by 4.58% or Rs 307.50 per share on the BSE. The 52-week high of the scrip is recorded at Rs 7,084.90 and the 52-week low at Rs 1,287.

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Superstar Stocks: BTST Trading and stocks that could deliver good returns till October 18, 2021.

Superstar Stocks: BTST Trading and stocks that could deliver good returns till October 18, 2021.
by 5paisa Research Team 14/10/2021

Stocks that are in focus, Stocks to buy for tomorrow, Superstar Stocks selected on basis of a three-factor model, Kajaria Ceramics, MRPL and HAL.

 

Many times market participants see a stock opening with a gap-up and wish they should have bought this superstar stock a day before to take advantage of the gap-up move. To fulfil this wish, we have come out with a unique system, which would help us to get the list of candidates that can be the probable superstar stocks for tomorrow.    

The superstar stocks for tomorrow selected are based on a three-factor prudent model. The first important factor for this model is price, the second key factor is pattern, and last but not least is the combination of momentum with volume. If a stock passes all these filters, it would flash in our system and as a result, will help traders to spot the superstar stocks for tomorrow at the right time!   

Here are the superstar BTST stocks for October 18, 2021.

Kajaria Ceramics: The stock has logged a fresh 52-week high on Thursday and it has formed a supersized bullish candle along with a surge in the volumes. The volume for the day has already surpassed its previous trading session. The RSI on an hourly, daily and the weekly time frame is in the 'super' bullish territory. The stock can probably test levels of Rs 1353 followed by Rs 1365 on the upside, while on the downside, support is seen around Rs 1274.

Mangalore Refinery and Petrochemicals (MRPL): Shares of the company have rose by 4% on Thursday. The stock has formed a supersized bullish candle along with a surge in the volumes. Interestingly, almost one and half hour is remaining in Thursday’s session and the stock has already surpassed the volume of its previous trading session, plus it is highest since October 07. The 14-period RSI is in the bullish territory on hourly, daily and weekly time frame. The stock has the potential to test levels of Rs 54.20 followed by Rs 55 on the upside. On the downside, the level of Rs 50.50 is likely to act as immediate support for the stock.

Hindustan Aeronautics (HAL): The stock has good action on Thursday as it has gained over 4% along with rise in the volumes. The volume for the day is highest single-day volume since September 21. The RSI on the hourly, daily and weekly chart is in super bullish territory. The stock has the potential to test levels of Rs 1517 and immediate support for the stock is placed at Rs 1418.

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Multibagger: This small-cap stock gave 400% returns in less than one year!

Multibagger: This small-cap stock gave 400% returns in less than one year!
by 5paisa Research Team 14/10/2021

Rajratan Global Wire is competitively placed to benefit from rising demand for personal means of transportation, the need for proximate and secure supply chains and the government’s ‘Aatmanirbhar Bharat’ policy.

Rajratan Global Wire Ltd, an Indian company engaged in the manufacturing of bead wire and high carbon steel carbon wires has turned into a multibagger by delivering massive returns of 400% as of October 13, 2021. The stock which was trading at Rs 444.3 on January 1, 2021, closed at Rs 2,221.45 on October 13, 2021. It made a 52-week high of Rs 2,737.8 on August 4, 2021. 

Rajratan is one of the largest bead wire manufacturers in Asia. It aims to become the leading and most preferred bead wire manufacturer and supplier to tyre companies in India and globally. The company has a strong foothold abroad with exports to countries like Italy, the USA, The Czech Republic, South Korea, Malaysia, Indonesia, Philippines, Vietnam, Sri Lanka, Finland and Bangladesh, among others.

In Q1FY22, on the consolidated front, the revenue of the company stood at Rs 182.29 crore as against Rs 64.65 crore in Q1FY21, registering a growth of 181.96% YoY. The revenue growth was aided by strong demand from domestic tyre manufacturers and increased exports. The EBITDA stood at Rs 36.01 crore, which was a growth of 364.05% over Rs 7.76 crore in Q1FY21. The PAT came in at Rs 21.92 crore as against Rs 1.65 crore in the previous year, with a YoY increase of 1228.48 per cent.

Keeping the rising demand in mind, it allocated Rs 26.48 crore, which accounted for 39% of its FY21 revenue towards capacity expansion. To tackle the challenge of the rising cost of raw materials, the company passed on the price increase to the customers. It plans to broaden its customer base across USA and Europe. To enhance capacity utilization by the end of FY22, land for the proposed plant in South India is under finalization. In three years' time, it intends to possess a consolidated bead wire capacity of 1,80,000 TPA and become completely free of long-term debt. Going forward, the company is likely to witness a rise in demand from the domestic and international markets.

At 2.30 pm on Thursday, the share price of Rajratan Global Wire Ltd was trading at Rs 2273, an increase of 2.32% over the previous day’s closing price of Rs 2221.45 on BSE.

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