Large numbers of equity mutual fund investors use systematic investment plans as their primary tool to meet their long-term goals. These equity investors may bear shortfalls after the introduction of a 10% long-term capital gains (LTCG) tax on such investments. It was a trend to invest in SIPs to meet your long-term goals. Which was followed by numerous money planners and wealth managers?
Usually, the investors invest in SIPs with the intention to meet some life goals. May it be retirement, or children’s education, or funding a vacation. From buying a house or a car to any other major capital expenditure can inspire you to start investing in SIP. Till today, it was believed that reaching these goals was considered by investors without factoring in the tax element.
But now, as LTCG of 10% is introduced in equity-oriented mutual fund schemes, so, whenever investors will sell their SIPs, they will have to face fall short of their targeted receipts. Let us take an example that supposes you are running a SIP of Rs 10,000 every month for five years to buy a car. When you sell your SIP then you may fall short by Rs 12,500. Here, approximately 12% return is your assumed fall short.
Among retail investors, SIPs in equity oriented mutual fund schemes have been very popular. This is even more popular among those, who are entering the capital markets for the first time. It is observed that the contributions to these SIPs have doubled in a short period of time. As per reliable data, SIPs in the month of April 2016 were of worth Rs 3,122 crore per month. This number grew up to Rs 6,222 crore per month in December 2017.
Experts believe that a lot of things including tax have changed in last five years. In every six months, you must step back and revisit your goals to check whether or not you are on right track.