Q1. I have invested in a systematic investment plan (SIP) for the past 15 years. How would I calculate the long-term capital gains as I want to withdraw money every quarter? -Ankur Yadav
Units are redeemed on a First-In-First-Out (FIFO) basis, i.e. the earliest units purchased would be considered for computing the capital gains (selling price less cost price) and classifying gains as short term / long term. For equity-oriented funds, capital gains for a holding period of more than one year are termed as long-term capital gains (LTCG). The Union Budget 2018 announced a 10% tax rate (excluding cess) on LTCG in equities exceeding Rs 1 lakh in a given financial year from April 1, 2018 onwards. However, the budget grandfathered (exempted) LTCG accrued till January 31, 2018.
In other words, for LTCG calculations the fund NAV as on January 31, 2018 can be considered as the cost price. For fixed-income oriented and international funds, capital gains (selling price less indexed cost price) for a holding period of more than three years are termed as long-term capital gains. The cost price is indexed as per the cost inflation index to adjust for inflation over the holding period, which serves to increase the cost price thereby lowering gains and hence the resultant tax outgo. LTCG for these funds are taxed at 20% (excluding cess) post indexation.
Q2. How can I invest in the debt ETF of the government? -B K Kapoor
Bharat Bond Exchange Traded Fund (ETF) is managed by Edelweiss AMC. It is a basket of bonds issued by central public sector enterprises/undertakings or any other government organization bonds. Bharat Bond ETF has a fixed maturity period (3 years and 10 years) like close-ended mutual funds and the units will be listed on stock exchanges. It shall replicate an underlying index, matching the credit quality and average maturity of the index. In line with SEBI regulations, it would have at least eight issuers, and no single issuer can have more than 15% weight in the fund.
The ETF shall include AAA-rated bonds issued by PSUs. The returns if held to maturity would be based on the prevailing yields of securities and their weightage in the respective bond index i.e. three and 10-year index. Yields currently are in the range of 6.50% to 7.50%.
The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to fepersonal firstname.lastname@example.org