I have invested in JM Money Manager Super Fund’s dividend plan. With the DDT being increased to 25 per cent from June 2013, the returns from this are unattractive. I am in the highest tax bracket and want to move from the dividend option to growth option. The investment is over one-year old and I can stay invested for another six months. How should I plan this?
- Arun
In the budget 2013, the rate of Dividend Distribution Tax (DDT) on debt funds was increased from 12.5 per cent to 25 per cent. This has taken away the major calling card of debt funds vis-a-vis bank FDs which are taxed at 30 per cent. But all is not lost, the dividend option of these funds is still tax efficient for investors falling in the highest tax bracket investing for a period of less than one year.
If an investor is investing for more than one-year, growth option is definitely a prudent choice. The long-term capital gains (LTCG) on investments made for more than a year in a debt fund will get indexation benefit and will be taxed at the rate of 20 per cent with indexation and 10 per cent without indexation. Since your investment has completed a year, you can pay the LTCG tax and switch to growth option immediately. You don’t need to wait further.
This article was originally published on April 26, 2013.
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