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POSTED BY ON September 22, 2011 8:31 am COMMENTS (18)
There are few things about the redemption process that would be helpful if you throw some light on.
1.I heard anything that is transacted in the stock market has a Securities Transaction Tax(STT). In the case of MFs the STT is paid by the AMCs and adjusted in calculating NAV.So the investor does not have to pay STT while redeming.Am I right?
2.There is exit load if one redeems before a certain period,generally 1 yr for open ended mfs.Now,the mf deducts the exit load and gives the investor the rest sum.Am I right?
3.Does the mf deducts the STCG(in case of redemption before 1 yr ) or the investor has to calculate it according to his tax slab in the IT return and pay to the IT dept?
I know these are quite elementary questions but your reply will help me and many like me.
Regards,
Trishit Ray
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Dear Trishit, If you are redeeming from a non performer fund, an exit load should not bother you. Regarding the DTC, It’s merely a discussion till date & yet to be passed as an ACT from parliament.
From your reply/query, I w’d add – the so called STCG ‘ll not be much. For example – You want to redeem 10K Rs. @ 100 Rs. NAV. Now on the redemption date, the declared NAV after you placed your order is 99.
Original planned Units to be redeemed = 10000 / 100 = 100 Units
Actual Units redeemed = 10000 / 99 = 101.01
Now do tell me, how much STCG Tax you w’d have to pay on these extra 1.01 units?
Thanks
Ashal
Hi
You can redeem the amount you need and that amount will be in your account irrespective of the NAV. As in a redemption option you can redeem either the units or amount.. Fill the amount..
Regards
Abhishek
Thanks Abhishek.
Yes we can do that.But what if one redeems from ongoing SIP?There is a chance of redeeming units that have not crossed the minimum period for exit load or STCG in this method.Right?After DTC there is every chance that STCG will be applied for investments even more than 1 yr.
I think there is not any way to avoid exit load and STCG for ongoing SIP in this method.Or is there any?
One can of course calculate how many units he needs to redeem to meet his needs, wait for 1p.m. or 1.30p.m. and see if the market is moving upwards and hope that his mf will hold at least previous day’s NAV and then redeem.Well in that case there is a chance of getting more money than he exactly requires and might feel he should have redeemed less units.But he will not be liable to exit load and STCG.This ploy will become counter productive if market falls after 2p.m. and/or NAV falls from previous day and the investor will have less amount of money.
We, small investors are a worried lot.
Regards,
Trishit
Hi
You can never know the exact amount on the day of the redemption because the NAV on that day is applicable. This can be found out only the next day.
Regards
Abhishek
Thanks Abhishek for your reply.
We can know the NAV of the day after 9p.m. from AMFI,AMC or CAMS site.But by that time the redemption has already been done though.
In this circumstances what do you do or suggest me to do about redemption to meet my target?
Do you redeem more units than your exact target(in Rs.) so even if NAV falls during that day you meet your target?
Regards,
Trishit
@trishit
The redemption generally is done when goal is achieved which i believe should not be dependent on day to day difference in share market. Unless there is some day like in 2008 when market fell around 12% in a day
Dear Trishit, the charge you are mentioning is called Fund management charge aka FMC. The declared NAV is has already factored in this FMC.
Hence at the time of redemption, you ‘ll get the amount on the basis of declared NAV. Adjusted for exit load (if any) & STT.
Thanks
Ashal
Dear Anand, Thanks for pointing out my mistakes. yes the STT rate is 0.25%,
hence in the above example – the STT amount ‘ll be 2.5 Rs. & final redemption amount ‘ll be 997.5 Rs.
Thanks
Ashal
Thanks Ashal and Anand for you replies.I am learning fast and it would have never been without your support.Can I try my luck another time by asking a question?
Every mutual fund has some expenses.We all consider it at the time of buying.Most of them have it between 1.5-2.5%. The NAV we see is calculated after taking the expense ratio into consideration and we don’t need to worry it at the time of redemption.Am I right?
Regards,
Trishit
Ashal, I thought STT is 0.25% of redemption value.
Can we verify it from somewhere?
Dear Trishit, the STT rate is 0.125% hence for the basic redemption amount 1000 Rs. (100*10), the STT amount ‘ll be 1.25 Rs. & you ‘ll be paid 998.75 Rs.
Thanks
Ashal
Dear Trishit, In case of Eq. MFs, apart from Exit load if any, STT ‘ll also be recovered on the redemption amount & the adjusted amount ‘ll be paid to you.
Please don’t get confused yourself with the STT paid during sell & purchase for MF & STT applied while redemption by Investor.
It’s this STT applied at redemption due to which the LTCG from Eq. MFs are tax free & STCG from Eq. MFs are taxed @ 15.45% rate.
Thanks
Ashal
Dear Ashal,
Thank you very much.You have always been kind and helpful.
Can you help me further?
How can I know what sum of Rs. will be deducted for redeeming my mf?Suppose I am through with exit load period.
For example,I have 100 units of equity mf A with latest NAV of Rs.10.I have crossed the minimum period for which exit load is applicable.If I redeem that particular mf how much will I get at hand?
Regards,
Trishit
first comes exit load and then STT.
if NAV is 100 and exit laod is 1% then 99 will be applicable NAV.
If NAV is 50 then it will be 49.5.
amount before STT = number_of_units * applicable_NAV_adjusted_after_exit_load_if_any
amount in hand = above amount * 0.9975
Thanks Anand for your reply.
I have a vague idea that any stock transaction in the stock market has a Securities Transaction Tax or STT.In case of mutual fund the STT will be on the stocks that the fund manager transacts in the stock market.Since the fund manager transacts the stocks the no. of stocks varies from scheme to scheme and hence the STT should vary.How can I know the applicable STT in Rs. of my particular mf?
“amount in hand = above amount * 0.9975” Can you please explain why you multiplied with
0.9975?Is it the rate of STT or the applicable STT?
Thanks in advance.
Regards,
Trishit
Hi Ajay,
The investor has to pay tax on the STCG himself.. the AMC does not deduct it.
Regards
Abhishek
1. AMC will deduct the STT and give the rest of the amount to you
2. AMC will deduct the exit load and give the rest of the amount to you
3. Not sure about this. AFAIK, AMC will NOT deduct the STCG and you have to do it on your own.
Thanks Ajay & Abhishek for your reply.I have further queries.
1.Do the AMCs take STT into consideration while declaring the NAV?Suppose I have 100 units of mf A and now the NAV is 10 if I redeem will I get 10X100=1000?
2.I should calculate the exit load(if applicable) of the present value of my holdings and then redeem?
3.Is there any way I can know the redemption value of my holding,considering the STT,exit load etc before hand, may be some formula or any website?
Thanks in advance.
Regards,
Trishit