SWP & STP The Smart MF Strategies

Many investors are worried about their regular cash flows after the introduction of DDT . DSIJ explains various tools available in MF, which can be used smartly to optimise your returns and maintain their regular cash flows.

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The wisdom of investing is all about taking smart investment decisions that maximise returns on your investments. The only thing that helps you in achieving this is your entry and exit at the right time. Investors are usually advised to invest for the long term in mutual funds. There are situations, however, which prompt investors to exit from the fund early. This may adversely impact the overall returns. The Union Budget 2018 was one such occasion which created a dilemma in the minds of investors regarding continuing with their investments in mutual funds.

The Union Budget 2018 has affected mutual fund industry considerably with its decision to reintroduce long term capital gain (LTCG) tax on equities and equity-related instruments and the introduction of dividend distribution tax (DDT). With the introduction of DDT, category that has really got impacted is the balanced funds and dividend option of equity funds. They are losing their popularity among the investors. The reason being, earlier all the dividend distributed by the fund houses were tax free; however, now the fund houses need to pay DDT at the rate of 10 percent, which will ultimately impact returns of the investors as the tax will be deducted from the scheme’s net asset value (NAV). The impact of introduction of DDT is clearly visible on the inflows into these category funds in the last couple of months. The balanced funds are on a losing streak and witnessed a huge decline in their inflows. The inflows have more than halved in the last three months ending April 2018.