Kavitha Menon's Blog

Five things to do in the current stock market scenario- My client was nervous. As the head of a leading consultancy firm he was aware of the state of affairs of the economy and specifically of his clients who were bleeding thanks to the impact of lockdown . He wanted to know my view on how to tackle the portfolio given the the stunning rally of stock markets across the globe . Like many a baffled investor he was sure that   the markets were in   bubble and unrealistic . While the rally has been sudden and unexpected there are justifications galore supporting it too. And as with every investor my client was   afraid that there will be reversal to the mean. What should investors do when Nifty is reaching new highs daily? I will share my two cents on how to deal with the current situation. 1.        Prepare yourself for volatility especially in equity – We aren’t exactly in a cheap market reeling from covid hit economy. Valuation ratios are on the top end of acceptable ranges and

Reduce tax impact on Debt Mutual Funds In the last couple of years some changes made in tax rules for dividends in mutual funds have made the dividend option of debt plans very unattractive. While dividend distribution tax has been done away with, mutual funds now deduct TDS (10%) and Stamp duty (.005%) every time dividends are paid and reinvested respectively. Besides the dividends are fully taxable in the hands of the investor. Clearly dividend options is not an option anymore and as an investor you must ensure you move lock stock into the growth option Short term capital gains  (if the units are sold before three years) in  debt mutual funds  are taxed as per applicable  tax  rate of the investor. Therefore, if your  tax  rate is 30% then  short term capital gains tax on debt fund  is 30% + 4% cess.  Long term capital gains  of  debt fund  are taxed at 20% with indexation. With some management , the overall effective tax payout can be brought down considerably. Let me explain