I have one SCSS Account in which Rs 15 Lacs are deposited and I get 9.3% quarterly interest and 10% TDS is deducted. Since I am not a Taxpayer I get the TDS back in the month of September every year. Thus I get a Cash of Rs 31387 every quarter and get Rs 13952 from ITO as refund in the month of September.
To compare this with Birla Sun Life MIP II Wealth 25 Direct Growth I have drawn a Spreadsheet with an initial investment of Rs 15 Lacs at NAV of Rs 35 (Units 42857.1429). I have assumed that this Mutual Fund can give me 9.3% annual growth (2.325% quarterly). After 3 months the NAV would be Rs 35.81375 and the investment worth Rs 1534875/- I withdraw 884.2466 Units to get a Cash of Rs 31387/- after considering 1% exit load. I repeat the same every 3 months i.e. withdraw no of Units to get a Cash of Rs 31387/-. After 18 months I withdraw more Units to get a Cash of Rs 45979/- (to compensate for Tax Refund I get). Again I withdraw Rs 31387/- every 3 months till the original investment completes 24 months. After 24 months I can see that the Value of my investment is Rs 1502914 (NAV Rs 41.81) which is a little more than the original investment of Rs 15 Lacs.
I hope there is no TDS on Mutual Fund withdrawals. The tax payable on Short Term Capital Gain is as per my Tax Bracket i.e. no Tax upto Rs 3 Lacs on Total Income including the Short Term Capital Gain.
For calculating Short Term Capital Gain I am multiplying Gain in NAV from initial investment by the Units withdrawn i.e. for first quarter Gain = (35.81375-35)*884.2466 = Rs 720/-. I can see that this figure becomes Rs 1409/- for second quarter and so on but it is only Rs 6894/- for first year and Rs 18870/- for second year which is much less compared to Rs 139500/- Taxable income from SCSS.
I would like to have comments on my assumptions and calculations.
Yes, there is no TDS on mutual fund investments for Resident Indians.
How about doing this analysis for Monthly Dividend payment option instead of Growth option. In Growth you have to redeem the units.
Kindly note that the dividend income received by a debt fund unit holder is also tax free. But, the mutual fund company has to pay a dividend distribution tax (DDT) before distributing this dividend income to its Unit-holders. DDT on Debt Mutual Funds is 28.84%.
You can check the monthly dividend payment history of a MIP fund on portals like moneycontrol.com.
For example – Kindly visit this link, click here..
Another option can be SWP (Systematic Withdrawal plan) in Growth plan (I assume that you are referring to this one only).
As MIP funds invest around 5 to 15% in Direct equities, they may generate better returns than fixed income products like Sr.C.S.S.
I did not consider Dividend option because 28.84% is too high for a non tax payer. I clicked on the above link and Dividend figures look good but are they gross figures or net after 28.84%?
After paying the declared dividends, the NAV of the fund will reduce to the extent of minus (Dividend + DDT on dividend).
So, if you are in lower tax slab rate, SWP in Growth option can make sense. But do watch out for Exit load (if any).
If you make lump sum investment then up to 3 years SWP are considered for STCG (if any) and after that as LTCG. The LTCG tax rate on debt funds is 20%.