Best mutual funds to invest Rs 10 lakh to earn more returns than bank FDs

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I am retired and will get Rs 10 lakh on the maturity of a recurring deposit in a month’s time. Please suggest the best mutual fund scheme so that I can earn more than a bank fixed deposit while ensuring the safety of capital.

Raj Khosla, Founder and Managing Director,

Mutual fund investments are subject to market risks and debt funds are also associated with credit and interest risks. Besides, the amendment to Finance Bill 2023 related to taxation of debt fund gains has created a level playing field for fixed deposits and debt funds. Debt funds will be beneficial in a falling interest regime, offer flexibility of withdrawals, and better compounding as returns are taxable only on withdrawals. It is advisable to invest in schemes like SCSS and bank FDs for senior citizens. If you exhaust the investment limit with these, consider debt funds.

I want to invest in equity in my mother’s name, who is a senior citizen. Can I make a monthly online transfer in her account and start an SIP in her name? What will be the tax implications for me after her demise?

Amit Maheshwari, Partner, AKM Global: The online transfer of money in the bank account of your mother would have no tax implications for you or her since this could be considered a gift, which is tax-exempt as per Section 56 of the Income–tax Act, 1961. There is no restriction on starting an SIP of an equity-oriented mutual fund in her name. On the demise of any family member, the accumulated proceeds of mutual funds are distributed among legal heirs, and the distribution is not taxable. On the sale of units, the holding period and cost of units from the date on which these became the property of your mother will be considered for calculating the gains, as per Section 49 and Section 2(42A), respectively. The long-term capital gains will be taxed at 10% on the amount exceeding Rs 1 lakh, and at 15% for short-term capital gains. The gains will be considered long term if the holding period of units exceeds 12 months. The taxpayer is allowed to reduce the cost of acquisition, and any other expenditure incurred wholly or exclusively for the purpose of transfer, from the value of consideration received on the sale of assets.

I have Rs 50 lakh in my demat account. In 2022-23, I received a dividend of `35,000, which will be taxed at 30%. Since my wife earns an annual salary of Rs 4 lakh, I’m considering transferring the equity shares from my demat account to hers. Can I transfer these directly? What are the potential tax implications? Is it a better strategy to sell the equities in my demat account, transfer the funds to my wife’s account, and then repurchase the equities with her demat account?

Raj Khosla, Founder and Managing Director,

As per the Indian tax laws, you can gift shares or other assets to your wife. The shares or funds received by your wife shall be tax-free, as per the provisions of Section 56 of the Income-tax Act. Neither your wife, nor you would be required to pay any tax on the transaction. However, as per the provisions of Section 64 of the Income-tax Act, any income arising directly or indirectly from the gifted assets shall be clubbed with the income of the spouse who has gifted the shares or funds. Therefore, any income that is received by your wife through such gifted funds, shares, or repurchased shares, shall be treated as your income for the purpose of income tax and you shall have to pay tax.

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