Taxation of balanced advantage funds in india

Taxes can make even the most seasoned investors break out in a cold sweat. But this should not be the reason that deters you from investing your money and seeing it grow over time. As long as you are armed with the knowledge of how your mutual fund schemes are taxed, you can confidently pick the right investments for your financial goals, ensure timely and correct payment of tax, and maximize your returns. This article will demystify the world of balanced advantage fund taxation. So, let's buckle up!

What are balanced advantage funds?

Balanced advantage funds are a type of hybrid fund that invests in equity and debt securities. These funds alter their asset allocation from equity to debt and vice versa based on the prevailing market conditions. Typically, when stock prices are high, these funds may increase exposure to debt securities. When stock prices drop, the fund may invest more in equities. Balanced advantage funds are dynamic in nature and the fund manager can change the investment style at their discretion.

Tax is one of the main deciding factors before selecting an investment. Here's what you need to know about balanced advantage fund taxation. 

Tax implications of balanced advantage funds

There are two essential things to note about the taxation of balanced advantage funds - the holding period and the type of mutual fund scheme:

1. Holding period: The holding period refers to the amount of time you hold your investment before redeeming its units. For instance, if you invest in a balanced advantage fund today and redeem the money after two years, you will have a holding period of two years. The holding period determines whether your gains are taxed as short- or long-term capital gains.

2. Tax classification of mutual fund scheme: From a tax perspective, mutual funds are classified as equity- and non-equity-oriented. Equity-oriented funds invest at least 65% of their asset in equity and equity-linked securities. Non-equity-oriented funds invest 35% or less of their assets in equity or equity-related securities. Balanced advantaged funds are taxed based on their asset allocation in equity and debt.

Taxation of balanced advantage funds (equity-oriented)

• Gains earned from equity funds with a holding period of more than a year are considered long-term capital gains and taxed at 10% on gains exceeding Rs 1 lakh in a financial year.
• Gains earned from equity funds with a holding period of less than a year are considered short-term capital gains and taxed at 15%.

Taxation of balanced advantage funds (non-equity-oriented)

• Gains earned from non-equity or debt funds are added to your total taxable income for the year and taxed as per the income tax slab you qualify for, irrespective of the holding period.

Conclusion

The tax implications of mutual fund schemes can seem complex at first, but with a little bit of knowledge and research, you can optimise your returns while minimising your tax burden. Remember to pay attention to the holding period and the fund category to plan your investments and redemptions. You can also consider reaching out to a tax professional or a financial advisor to clarify any doubts.  Additionally, keep in mind that tax laws may change over time, and it is advised to stay up to date with the latest provisions at all times.

An investor education initiative

All Mutual Fund Investors have to go through a one-time KYC process. Investors should deal only with Registered Mutual Fund (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit - https://www.edelweissmf.com/kyc-norms

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.