Does LTCG tax on equity mutual fund schemes make them unattractive?

Equity investors are a worried lot. After the budget announcement on February 1, they have to pay tax on long-term gains made from equities, which were earlier tax-free. That’s a big negative. Some investors are contemplating:

“Why invest in equities anymore, since it has lost its preferential tax treatment?”

“Why invest for long term in equities, since difference between STCG & LTCG is only 5%?”

“Isn’t it better to look at other investment options, since their tax rate has remained unchanged?”

It has lost its preferential tax treatment. Should you invest?”
The answer is simple: equities as an asset class has created long term wealth. It has made so many people rich, because they remained invested in equities for the long term. Look at S&P BSE Sensex, a well kn ..

Let us understand the impact of LTCG tax on equity investments with the help of an example.

Anil invests Rs 1 lakh today. He holds his investment for 20 years and it generates 16 per cent CAGR returns (same as historical equity index returns). After 20 years, he accumulates around Rs 19 lakh from his investment, a growth of 19 times in 20 years.

If he sells his investment that year, he will have to pay LTCG tax at 10 per cent, amounting to Rs 1.74 lakh. Cconsidering Rs 1 lak ..

Difference between STCG & LTCG is only 5 per cent. Why invest long term?
Equities have created wealth in the long run, delivering approximately 16 per cent CAGR returns; creating happy long-term investors. However, in the short run equity markets fluctuate drastically, sometimes going in the negative territory too. Some short term traders/ investors may make money, while most others lose money. There are so many instances of investors not coming back to stock markets because they  ..



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