Types of MF schems to consider

Taxation in MF

why multicap

what are multicap and flexicap funds.

If you have been wondering what are multi cap and flexi cap funds, you can refer to SEBI’s product categorization circular issued in Oct 2017 that came into effect in June 2018. This circular allowed multicap funds to invest 65% of their assets in equity and equity related instruments across large cap, mid cap and small cap stocks. In Sept 2020, SEBI mandated multicap funds to maintain an exposure of atleast 25% each in large cap, mid cap and small cap stocks with the aim of providing greater diversification to multi cap fund investors. However, this limits the fund manager’s ability to leverage opportunities based on his/her outlook because at times it may be necessary to underweigh a particular segment that is expected to do poorly which would mean flouting the minimum 25% allocation mandate.

Hence in Nov 2020, SEBI introduced Flexi Cap Funds which are similar to Multi Cap Funds but follow a flexible investment mandate. The key difference between multicap and flexicap fund is the flexibility the latter has in changing allocation between large caps, mid caps and small caps while ensuring 65% of its assets are allocated to equity and equity related instruments. For instance, if the fund manager feels a need to reduce exposure to small caps during economic uncertainty, he/she can reduce the allocation to zero and increase the allocation to large caps/mid caps. But a multi cap fund can’t manage its portfolio in such a dynamic manner.

Investors who find comfort in remaining invested across market capitalizations irrespective of the market cycles with a fixed allocation in small cap, mid cap and large cap companies, can choose Multi cap funds. Those who prefer a flexible investment strategy that can increase/decrease exposure across market caps depending on the market outlook can opt for Flexi cap funds.

why do you need MF Advisor?

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What should a nominee do after the death of an investor?

What should a nominee do after the death of an investor? How is investment money taxed?

After the demise of an investor, the family members can benefit from the investments, once the accumulated amount is transferred to the nominee(s) or to the legal heir(s).

People make investments or take insurance covers to ensure a better future or to maintain the same standard of living after retirement or to ensure that the dreams of financially dependent family members don’t get ruined in case of unfortunate demise of the earning member of the family.

While there are many financial instruments available in the market, some are intended to transfer the risks (like insurances), some are to earn a risk-free returns (like Bonds, FDs and other small saving instruments) and some are for generating higher long-term returns (like equities, equity-oriented Mutual Fund (MF), etc).

However, after the demise of the investor, the family members can benefit from the investments, once the accumulated amount is transferred to the person(s) nominated by the investor (the nominee(s)) or to the legal heir(s). The process of such transfer is called transmission.

During the time lag between the date of death of an investor, till the death intimation is given or the death claim is made, different rules are applicable on different instruments regarding the rate of return or survival benefits payable during the period.

Equities, Equity-oriented MF Schemes

As no fixed interest rate or bonus rate is applicable on capital instruments like equities and MF Schemes, only the number of shares / units of MF schemes are transmitted to the nominee(s) / legal heir(s). Once the units are transmitted, the beneficiaries may redeem the investments as per their convenience. The gain or loss on investments will depend on the market price of the shares / NAV of the units on the day of redemption.

Taxation

To determine if the capital gain on redemption of equity shares / MF units is of long-term or short-term in nature, the date of investment will be taken into consideration is the original date on which the investment was made by the deceased investor and not the date of transmission of the shares / units to the nominee(s) / legal heir(s).

For fixed-income instruments, the same tax rules (as applicable on specific instruments) will be applicable on the interest earned by the nominee(s) / legal heir(s) once the instruments are transmitted.