I have invested in balanced advantage funds. How do I know what is the tax rate of my profits?
Based on Google search, rate will be either of debt fund rates (income slab rate on short term and 20% after indexation on long term) or that of equity fund rates (15% on short term and 10% without indexation after long term, both after STT deduction). And which rate will be applicable will be decided by recent investments by the fund, but not sure what is the definition of “recent” and where to get historical portfolios.
So, my question is if I book my profit now, how do I know which rate will be applicable? Shall I receive any document from the fund now at time of sell? Or at end of financial year? Or, something else?
Generally, Balanced Advantage Funds, also known as Dynamic Asset Allocation Funds, are a category of Hybrid Mutual Fund Schemes as specified by SEBI that invest in asset classes like Equity and Debt.
Taxation rates are based on asset component. If it’s more equity oriented then equity mutual funds rate will apply and if debt oriented then debt mutual fund rate will apply. Practically, it is assumed as Equity Hybrid Funds and accordingly tax treatment given.
Since, it is ambiguous, you should read the fund document.
I am aware of this, and SID of most funds document this as well saying that it’ll be equity taxation most likely, but it may change without intimation.
For example, this is for Edelweiss:
The Scheme’s corpus shall predominantly be invested in equity and equity related
securities including equity derivatives in the Indian and international markets.
However, in order to protect its objective of giving absolute returns with low
volatility, the Scheme may even invest its corpus largely in debt and money market
securities. In such a situation, the Scheme may at any point of time lose its status
of an equity oriented Scheme and such conversion may have tax consequences. It
may be noted that no prior intimation/indication would be given to investors in
such cases.
My question is how to know the rate retroactively? Say, I gained 10K by selling my units in May’2021. In July’2022, there is a possibility that I would not remember. Is there a way to know whether that 10K is subject to equity or debt taxation? Is there any document or site with historical allocation chart etc. that I’ll be able to refer in future?
Hopefully, my question made sense. If not, please let me know.
In this case, mutual fund scheme is classified as an Equity Mutual Fund if it invests more than 60% (sixty percent) of its total assets in the equity shares of different companies. The balance amount can be invested in money market instruments or debt securities as per the investment objective of the scheme.
You can get more details from respective fund managers regarding asset allocation in mutual fund schemes.