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POSTED BY ON March 6, 2012 11:03 am COMMENTS (3)
All:
Does anybody here know how I can record a STP in MoneyControl or ValueResearchOnline portfolios? Currently the only option I see is to record a sell in one fund and put a buy in another fund. But if that’s the case this is wrongly considered as taxable under capital gains.
Any ideas?
Thanks,
Ram
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Dear Rmohan, do you mean redeeming money from debt fund to transfer to Eq. fund under STP does not qualify for STCG & tax there on if any? My dear friend, the units sold from the original fund to invest money in a target fund, are eligible for STCG & Tax there on.
Thanks
Ashal
I think Moneycontrol is right.
Assume this:
Debt fund value on 6-mar: 100,000
Debt fund value on 22-Mar: 100,550
You do a STP for Rs. 1000 on Mar 22
Debt fund value = 100,550 – 1000 = 99,550
Of the 1000 that was STPed out 550 was interest gained 450 was from your principal. You have a tax liability on this 550 per your tax bracket.
STP does not make the Debt intrument tax free. The only advantage is this: If you do a SIP from your Bank account the money has to sit in the bank acocunt and earn 4% (most likely) interest. However for the same duration if you park in a liuid fund the return earned is 8.5+%. (For 15 days for 1 lac the differential gain is about Rs.185). Dont underestimate this small incremental amount. This adds up over long periods of time as in “small drops make an ocean.”
Alternately if you opt for a dividend in a liuid fund it is taxed at 15%. You can time the STPs in such a way that the monthly dividend is paid at the end of month and your STP happens at the beginning of the month. That way you can grab the accumulated interest as Dividend at end of month (and reinvest back in the same liuid fund as well) so when the
STP happens on the 1st/2nd of the month the accumulated interest is only for 2-3 days so taxes are lower. However if you run multiple SIPs for the same scheme at various points in a month there is only little we can do except as explaind in the previous paragraph!
ok thanks for the clarification. I thought a switch meant you haven’t yet realized the gain because the money is still with the same AMC