Implications of Rising DDT on Debt mutual Funds

POSTED BY SHRIKANT VYAS ON March 30, 2013 11:20 pm COMMENTS (4)

In recent Budgetary announcements, FM have increased Dividend Distribution Tax. How, actually it will impact the returns of any scheme? Also, what is the resolution to avoid any adverse affect on Mutual Fund Portfolio.?

4 replies on this article “Implications of Rising DDT on Debt mutual Funds”

  1. SHRIKANT VYAS says:

    Thanks for the Prompt response ashal.
    I got the point now. 🙂

  2. Dear Shrikant, in case of Growth option, if you are not in need of money, no profit booking or redemption ‘ll be there. Now if you did not redeem, after completing 1Y, you are eligible for LTCG tax wither @ 10.3% with out indexation or 20.6% with indexation (whichever is favorable to you). This far lower than 28.5% DDT. Even in case one is in 30.9% tax slab & redeming some amount just like dividend, the STCg tax liability @ 30.9% ‘ll be lower than 28.5% DDT. Strange but true. Do not go by my words & check on your own. This is called tax arbitrage. 🙂

    Thanks

    Ashal

  3. SHRIKANT VYAS says:

    Thanks Ashal, this is really helpful..
    but, can you please explain me more about, “In case of Growth plans, one can plan the tax outgo depending upon the need of money which is not the case in Dividend option”…

  4. Dear Shrikant, now all debt schemes’ dividend plans are at par as far as question of DDT goes. In a sense, the return from non liquid funds like short term debt funds, gilt funds, income funds & even low Eq. hybrid funds (MIPs) ‘ll be lower for dividend plans. To over come this situation, growth plans are the only way out for common investors. In case of Growth plans, one can plan the tax outgo depending upon the need of money which is not the case in Dividend option.

    Thanks

    Ashal

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