mutual funds direct and indirect amount calucation
Assumptions:
- Investment: ₹10,00,000
- Tenure: 5 years, but cashing out after 3 years.
- Value after 3 years: ₹30,00,000.
- Direct Plan: No commission.
- Regular Plan: Includes commission (usually 0.5%-1.5% annually).
- Taxation:
- Mutual fund returns are taxed as capital gains.
- Equity-oriented funds:
- Long-Term Capital Gains (LTCG) > 1 year: 10% (above ₹1 lakh).
- Debt-oriented funds:
- Long-Term (>3 years): 20% with indexation benefit.
- Short-Term (<3 years): Taxed as per income slab.
Calculation Steps:
1. Value Difference: Direct vs. Regular
- Regular plans have an expense ratio higher than direct plans due to distributor commissions.
- Assume:
- Direct Plan CAGR: 20% (compounded annual growth rate).
- Regular Plan CAGR: 18.5%.
Value after 3 years:
- Direct Plan:
- Regular Plan:
2. Tax Implications (if redeemed after 3 years):
Since you are cashing out after 3 years:
- Equity Fund: LTCG applies.
- Debt Fund: LTCG with indexation.
For Equity Funds:
- Gain = Final Value - Initial Investment = ₹30,00,000 - ₹10,00,000 = ₹20,00,000.
- LTCG Tax = .
Post-tax Redemption Value:
- Direct: ₹30,00,000 - ₹1,90,000 = ₹28,10,000.
- Regular: ₹29,59,211 - ₹1,90,000 = ₹27,69,211.
For Debt Funds:
Debt funds held for 3+ years benefit from indexation (adjusting purchase price for inflation). Assuming an indexation factor of 1.15:
- Indexed Purchase Price = ₹10,00,000 × 1.15 = ₹11,50,000.
- Taxable Gain = ₹30,00,000 - ₹11,50,000 = ₹18,50,000.
- LTCG Tax = .
Post-tax Redemption Value:
- Direct: ₹30,00,000 - ₹3,70,000 = ₹26,30,000.
- Regular: ₹29,59,211 - ₹3,70,000 = ₹25,89,211.
Final Summary:
Fund Type | Plan | Post-tax Value | Tax Paid |
---|---|---|---|
Equity Fund | Direct | ₹28,10,000 | ₹1,90,000 |
Regular | ₹27,69,211 | ₹1,90,000 | |
Debt Fund | Direct | ₹26,30,000 | ₹3,70,000 |
Regular | ₹25,89,211 | ₹3,70,000 |
Conclusion:
- Direct Plans always provide higher returns because they have lower expense ratios.
- Equity Funds are more tax-efficient than debt funds for long-term investments.