Q. I will turn an NRI next month. Can I continue mutual fund SIPs and my stock portfolio that I built so far?
A. The impact on your portfolio depends on the country you stay in when your residential status changes to an NRI. In any case, you can continue to hold on to your existing mutual fund investments. You can start your SIPs in future after a change in residential status to an NRI, while opting for the eligible mutual fund company as per the norms of the foreign country in question. If you are moving to the US or Canada, then there are certain restrictions, which limits your mutual fund investment to a few companies only: you need to stop existing SIPs, but you can continue to hold all your past investments until the time you prefer. Moreover, you have to report any gains from such investments to the US/Canadian authorities, and such a gain will be subject to tax as per the applicable rules in the US/Canada.
Q. What is an indexation benefit in a mutual fund?
A. An indexation benefit is provided to calculate taxes on Long Term Capital Gains on debt mutual funds. The benefit helps you save taxes on your fund gains. You are allowed to calculate an inflation adjusted purchase price for your funds. For example, you invested Rs. 1000 in a debt fund in 2011-12. In 2016-17, you sold the funds for Rs. 2000. Ordinarily, your gains would be Rs. 1000. But you can calculate the indexed value of your purchase by referring to a Cost Inflation Index (CII) table, which would suggest that the inflation-adjusted value of your purchase is Rs. 1434.78. So your Long Term Capital Gains are actually 565.22. Therefore, your tax at 20.6% + cess + surcharge would be calculated at this amount instead of the whole gain of Rs. 1000, thus helping you earn higher returns.
Q.Is it beneficial to switch regular mutual funds to a direct mutual fund?
A. There are pros and cons to consider. Regular funds have a slightly higher expense ratio than direct funds. However, for the higher commission, you also receive an agent or the distributor’s investment advice. Regular plans may be better for first-time or inexperienced investors. Seasoned investors who understand the mutual fund marketplace and know which funds to pick for their investment goals can nevertheless go ahead and choose direct plans.
Q. What are the pros and cons of having a debit card versus a credit card and vice versa?
A. Credit cards are loans on tap. They’re often the first credit product most people take once they become financially independent. Not only do you have instant credit with an interest-free period, you can also earn rewards, cash back, and air miles through credit card use. Use your credit card judiciously by repaying your balance in full every month, and you will be rewarded with a good credit score which will help you get more credit cards and loans when you need them. Debit cards on the other hand, allow you to conveniently access your own money in the bank, be it via an ATM, a PoS machine or through an e-commerce app or website. You can also get rewards, cashback, and deals on your debit card. However you can use it only to the extent of your bank balance. It’s good to have both a debit and a credit card to make the best of all financial scenarios.
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