You should select Growth or Dividend depending on how long you plan to stay invested and your current tax rate. We’ve prepared a handy table below which explains how we would pick between Growth and Dividend for our own investments. But Clearfunds is not a tax advisor, and you should always seek independent tax advice before making a decision.

IF YOUR CURRENT TAX RATE IS 10% OR 20%


CATEGORY
 HOW LONG WILL
YOU STAY INVESTED?
 OPTION
 WHY DO WE RECOMMEND THIS?

Equity Funds

Balanced Funds

 < 1 year
 Dividend Payout #

Any gains on holdings < 1 year are taxed at 15%. Dividends are taxed at 10%

Equity Funds

Balanced Funds

Arbitrage Funds

 > 1 year
 Growth +

Any gains > 1 year more than Rs 1 lakh are taxed at 10%.

Tax-Saving (ELSS) Funds

 > 3 years
 Growth +

You have to stay invested for > 3 years. Any dividends reinvested are locked in for 3 years.

Debt Funds

Income Funds

Liquid Funds

 < 3 years
 Growth +

Your gains are taxed at 10% or 20% which is lower than the dividend tax rate of 25%.

Debt Funds

Income Funds

Liquid Funds

 > 3 years
 Growth +

Your gains are taxed a 20% after indexation.


All tax rates above are base tax rates and do not include surcharge or education cess.

+Surcharge is based on total income, and Health and Education cess of 4% is applicable to Capital Gains.

# Dividend Tax of 10% + Surcharge 12% + Cess 4% = 11.648%

$ Dividend Tax of 25% + Surcharge 12% + Cess 4% = 29.12%



IF YOUR CURRENT TAX RATE IS 30%

 

CATEGORY
 HOW LONG WILL
YOU STAY INVESTED?
 OPTION
 WHY DO WE RECOMMEND THIS?

Equity Funds

Balanced Funds

 < 1 year
 Dividend Payout #

Any gains on holdings < 1 year are taxed at 15%. Dividends are taxed at 10%

Equity Funds

Balanced Funds

Arbitrage Funds

 > 1 year
 Growth +

Any gains > 1 year more than Rs 1 lakh are taxed at 10%.

Tax-Saving (ELSS) Funds

 > 3 years
 Growth +

You have to stay invested for > 3 years. Any dividends reinvested are locked in for 3 years.

Debt Funds

Income Funds

Liquid Funds

 < 3 years
 Dividend Payout $

Your dividends are taxed at the Mutual Fund at 25%, lower than your tax rate of 30%.

Debt Funds

Income Funds

Liquid Funds

 > 3 years
 Growth +

Your gains are taxed at 20% after indexation.


All tax rates above are base tax rates and do not include surcharge or education cess.

+Surcharge is based on total income, and Health and Education cess of 4% is applicable to Capital Gains.

# Dividend Tax of 10% + Surcharge 12% + Cess 4% = 11.648%

$ Dividend Tax of 25% + Surcharge 12% + Cess 4% = 29.12%



NOTE: This FAQ has been updated with the announcements made in the Union Budget 2018.