It is learnt that under Direct Tax Code (DTC) long term capital gains are taxed. This would mean that there is hardly any benefit in investing in MFs any more. Since in the long term we get some 10-15% profit in MFs and if we have to pay tax on that gain then the prifit is minimal.
Experts' comments please.
Kaushal
I agree that benefits on inveting in equity MF's will get a setback with DTC. But remember that equity MF's won't be bad investments. While calculating long term capital gains, indexation will be taken into account.
For an example let's say an investor in 10% tax bracket invests 1 lakh and his money grows to 2 lakh in 5 years. Also assume that inflation rate is 6% for those 5 years.
According to current tax laws his tax would be zero.
According to DTC inflation adjusted value for his investment @ 6% inflation = 133,822. So his gains would be 66,178 hence tax would be 6,617.
Here I have assumed return of 15% on equities for 5 years in above example. The tax impact would be
For 10% bracket: CAGR of 14%
For 20% bracket: CAGR of 13.3%
For 30% bracket: CAGR of 12.49%
Note that Equities would still be attractive in long term.
