In union budget 2018, Finance Minister has introduced a Long-Term Capital Gains Tax of 10% for Capital Gains exceeding ₹ 1 lakh in a year. This tax will be charged without providing the benefit of indexation.

Further, to avoid any retrospective impact, gains up to 31 January 2018 will be grandfathered. This is done by introducing a deeming provision for determining the cost of acquisition. Accordingly, the cost of acquisition would be the higher of the actual cost of acquisition and the fair market value.

As a result of the announcement related to the LTCG tax in the budget 2018, the stock markets reacted negatively with the benchmark Sensex falling more than 800 points as investors’ sentiments dampened and they rushed for selling their holdings. Broader Nifty also was trading lower on the news.

Lets look into various options to avoid paying LTCG tax.

How to Avoid Paying New LTCG Tax?

Everyone wants to know how to avoid paying the re-introduced LTCG tax on equity mutual funds. Here are some suggestion:

Systematic Withdrawal Plan (SWP)

SWP is a plan that allows the investor to give a mandate to the fund to periodically and systematically redeem units and transfer the money from its sale money from a mutual fund scheme to your bank account.

Small investors can avail the benefit of exemption from tax on LTCG from the transfer of listed shares and units, by opting for systematic transfer plan, such that the overall gain in a financial year is below the threshold of ₹ 1 lakh.

Selling at Right Time

In Case of Gain

By selling the equity mutual fund holdings immediately or systematically before reaching the limit of ₹ 1 lakh in a financial year. You have to closely monitor your investment portfolio and market scenario to decide the right time of selling off mutual fund units.

In Case of Loss

If you are incurring a long-term capital loss on selling equity mutual fund units then it may be better to sell after 31.3.2018 as then you would be able to set them off against any LTCG which you may get, as LTCG will become taxable after this date.

But, it seems there is a consensus among experts and prudent investors that the only way to avoid paying the new LTCG tax is to hold on to your investments.

Why Holding on to Your Investment is Better Option?

Every time you are going to sell your mutual fund holdings, you are going to incur tax. If you are selling it before a year, you would pay short-term capital gains (STCG) tax of 15 percent.

If you are selling it after a year, you will have to pay tax of 10 percent without indexation if the long-term capital gains (LTCG) are above ₹ 1 lakh in a financial year.

That means you should be a bit careful about selling your mutual funds even after a year.

The only way you can do is to pick mutual funds that are consistent performers during various phases in the market.

Investing in such schemes would help you to avoid churning your portfolio at regular intervals. It is very important to invest in consistently performing mutual fund schemes if you want to sail through the volatile markets.

So, it is suggested for an equity market investor to not worry about new LTCG taxes and instead pay them. Just make sure you earn more on your investment by choosing your portfolio diligently and cleverly.

Best Equity Mutual Funds To Invest In 2018

Only those schemes which have consistently performed well in all kinds of markets can help you achieve your long-term goals and avoid being hurt from LTCG tax regime.

These are the equity mutual fund schemes that have steadily performed better than their benchmarks and category average over three and five year periods.

Large-cap Funds

Large cap are big, well established companies of the equity market. These companies are strong, reputable and trustworthy. Large cap companies generally are top 100 companies in a market. These are the best large cap funds of 2018:

Funds Type
Mirae Asset India Opportunities Fund Large Cap
SBI Bluechip Fund Large Cap
Reliance Top 200 Fund Large Cap

A brief Description of These Funds

Mirae Asset India Opportunities Fund

  • This fund has been rated as a 5-star fund by Groww.
  • AUM of close to ₹ 6123 Cr.
  • Age is nearly 10 years.
  • Past 1 years and 3 years return is 24.64% and 14.13% per annum respectively
  • Has consistently outperformed its benchmark BSE S&P 100 and NIFTY 50 since its launch.
  • The top portfolio holdings of the fund include HDFC Bank Ltd., ICICI Bank Ltd., L&T ltd., Infosys Ltd., Tata Steel Ltd., SBI etc.
  • The holdings are balanced across various sectors with maximum weightage given to Financial Services (33.2%).
  • Minimum SIP = ₹ 1000

SBI Bluechip Fund

  • This fund has been rated as a 4-star fund by Groww.
  • AUM of close to ₹ 17869 Cr.
  • Age is more than 10 years.
  • Past 1 years and 3 years return is 18.07% and11.54% per annum respectively.
  • Has consistently outperformed its benchmark BSE S&P 100 and NIFTY 50 since its launch.
  • The top portfolio holdings of the fund include HDFC Bank Ltd., CCIL, L&T ltd., M&M ltd., ITC ltd., SBI etc.
  • The holdings are balanced across various sectors with maximum weightage given to Financial Services (35%).
  • Minimum SIP = ₹ 500

Reliance Top 200 Fund

  • This fund has been rated as a 5-star fund by Groww.
  • AUM of close to ₹ 4149 Cr.
  • Age is more than 10 years.
  • Past 1 years and 3 years return is 26.79% and 11.45% per annum respectively
  • Has consistently outperformed its benchmark BSE S&P 100 and NIFTY 50 since its launch.
  • The top portfolio holdings of the fund include HDFC Bank Ltd., L&T Ltd., Infosys Ltd., ITC ltd., SBI, ICICI Bank Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Financial Services (28%).
  • Minimum SIP = ₹ 100

Mid-cap Funds

Mid cap are compact companies of the equity market, falling somewhere between small and large cap companies and are 100-250 companies in a market after large cap companies. Mid cap funds can be great investment instruments for investors looking for funds with high return possibilities, without the volatility of small cap funds and index-related returns like those of large cap funds. These are the best Mid cap funds of 2018 :

Funds Type
Aditya Birla Sun Life Small & Midcap Fund Mid Cap
L&T Midcap Fund Mid Cap
Mirae Asset Emerging Bluechip Fund Mid Cap

A brief description of these funds

Aditya Birla SL Small & Midcap Fund

  • This fund has been rated as a 5-star fund by Groww.
  • AUM of close to ₹ 1866 Cr.
  • Age is more than 10 years.
  • Past 1 years and 3 years return is 29.65% and 21.73% per annum respectively
  • Has consistently outperformed its benchmark BSE S&P 100 and NIFTY 50 since its launch.
  • The top portfolio holdings of the fund include DCB Bank Ltd., CCIL, Gujarat State Petronet Ltd., CPCL, PNC Infratech Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Financial Services (21%).
  • Minimum SIP = ₹ 1000

L&T Midcap Fund

  • This fund has been rated as a 5-star fund by Groww.
  • AUM of close to ₹ 1323 Cr.
  • Age is more than 10 years.
  • Past 1 years and 3 years return is 30.2% and 20.37% per annum respectively
  • Has consistently outperformed its benchmark BSE S&P 100 and NIFTY 50 since its launch.
  • The top portfolio holdings of the fund include CCIL, IndusInd Bank Ltd., Shree Cement Ltd., EIL, Berger Paints Ltd.etc.
  • The holdings are balanced across various sectors with maximum weightage given to Financial Services (20%).
  • Minimum SIP = ₹ 500

Mirae Asset Emerging Bluechip Fund

  • This fund has been rated as a 5-star fund by Groww.
  • AUM of close to ₹ 5364 Cr.
  • Age is more than 7 years.
  • Past 1 years and 3 years return is 25.43% and 20.96% per annum respectively
  • Has consistently outperformed its benchmark BSE S&P 100 and NIFTY 50 since its launch.
  • The top portfolio holdings of the fund include Raymond Ltd., ICICI Bank Ltd., Federal Bank Ltd., Kotak Mahindra Bank Ltd., Tata Steel Ltd., Ceat Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Financial Services (23.2%).
  • Minimum SIP = ₹ 1000

Small-cap Funds

Small cap are small companies of stock market and are all the companies apart from large and mid cap companies in a market. Small cap funds have exponential growth potential and give investors high returns on investment. Best part of small caps funds is that they are under followed in stock market and usually untapped by institutional investors, giving a huge opportunity to prudent investors to grow their investment quickly. These are the best Small cap funds of 2018:

Funds Type
HDFC Small Cap Fund Small Cap
L&T Emerging Businesses Fund Small Cap

A brief description of these funds

HDFC Small Cap Fund

  • This fund has been rated as a 5-star fund by Groww.
  • AUM of close to ₹ 2152 Cr.
  • Age is around 10 years.
  • Past 1 years and 3 years return is 44.15% and 22.01% per annum respectively
  • Has consistently outperformed its benchmark BSE S&P 100 and NIFTY 50 since its launch.
  • The top portfolio holdings of the fund include CCIL, Sonata Software Ltd., KEC International Ltd., Balkrishna Industries Ltd., Tata Metaliks Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Industrial Manufacture (17.8%).
  • Minimum SIP = ₹ 500

L&T Emerging Businesses Fund

  • This fund has been rated as a 5-star fund by Groww.
  • Launch in May 2014.
  • AUM of close to ₹ 3587 Cr.
  • Past 1 years and 3 years return is 39.88% and 25.75% per annum respectively
  • Has consistently outperformed its benchmark BSE S&P 100 and NIFTY 50 since its launch.
  • The top portfolio holdings of the fund include CCIL, The Ramco Cements Ltd., HEG Ltd., Aarti Industries, Lakshmi Machine Works Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Industrial Manufacture (19.3%).
  • Minimum SIP = ₹ 500

Multi-cap Funds

Multi cap funds invest in companies of all sizes unlike other equity funds that usually restrict themselves to a market cap or sector. Because of the flexibility of investing all type of companies irrespective of size, the fund manager can generate better risk-adjusted returns. Here is the best fund for this category for 2018:

Funds Type
Motilal Oswal MOSt Focused Multicap 35 Fund Diversified Equity (Multi Cap)
Aditya Birla Sun Life Advantage Fund Diversified Equity (Multi Cap)
DSP BlackRock Opportunities Fund Diversified Equity (Multi Cap)

A brief description of these funds

Motilal Oswal Multicap 35 Fund 

  • This fund has been rated as a 5-star fund by Groww.
  • AUM of close to ₹ 11411 Cr.
  • Age is more than 10 years.
  • Past 1 years and 3 years return is 23.94% and 18.81% per annum respectively
  • Has consistently outperformed its benchmark BSE S&P 100 and NIFTY 50 since its launch.
  • The top portfolio holdings of the fund include Maruti Suzuki India Ltd., HDFC Bank Ltd., HPCL, BPCL, United Spirits Ltd., Eicher Motor Ltd., IndusInd Bank Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Financial Services (45.6%).
  • Minimum SIP = ₹ 1000

Aditya Birla Sun Life Advantage Fund

  • This fund has been rated as a 4-star fund by Groww.
  • AUM of close to ₹ 5738 Cr.
  • Age is more than 10 years.
  • Past 1 years and 3 years return is 16.64% and 13.8% per annum respectively
  • Has consistently outperformed its benchmark BSE S&P 100 and NIFTY 50 since its launch.
  • The top portfolio holdings of the fund include Maruti Suzuki India Ltd., HDFC Bank Ltd., HPCL, SBI, Voltas Ltd., Eicher Motor Ltd., ICICI Bank Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Financial Services (30.9%).
  • Minimum SIP = ₹ 1000

DSP BlackRock Opportunities Fund

  • This fund has been rated as a 5-star fund by Groww.
  • AUM of close to ₹ 4805 Cr.
  • Age is more than 10 years.
  • Past 1 years and 3 years return is 20.54% and 16.06% per annum respectively
  • Has consistently outperformed its benchmark BSE S&P 100 and NIFTY 50 since its launch.
  • The top portfolio holdings of the fund include Maruti Suzuki India Ltd., HDFC Bank Ltd., HPCL, SBI, Gail (India) Ltd., Eicher Motor Ltd., ICICI Bank Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Financial Services (35.1%).
  • Minimum SIP = ₹ 500

Sector Funds

Sector Funds are essentially mutual funds that invest in the stocks of companies that operate in a particular sector or industry. These funds are ideal as investment destination if some sectors are expected to outperform the others. If you have good knowledge of a certain sector or industry, you can opt to invest in a sector fund of that industry. Here is the best fund for this category for 2018:

Funds Type
UTI Transportation and Logistics Fund Sector Funds
Aditya Birla Sun Life Banking and Financial Services Fund Sector Funds
Sundaram Rural India Fund Sector Funds
L&T Infrastructure Fund Sector Funds

A brief description of these funds

UTI Transportation and Logistics Fund

  • This fund has been rated as a 5-star fund by Groww.
  • AUM of close to ₹ 1540 Cr.
  • Age is more than 10 years.
  • Past 1 years and 3 years return is 23.22% and 14.27% per annum respectively
  • Has consistently outperformed its benchmark BSE S&P 100 and NIFTY 50 since its launch.
  • The top portfolio holdings of the fund include Maruti Suzuki India Ltd., Eicher Motor Ltd., Tata Motors Ltd., Hero MotoCorp Ltd., MRF Ltd., M&M Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Automobile (78.2%).
  • Minimum SIP = ₹ 500

Aditya Birla Sun Life Banking and Financial Services Fund

  • This fund has been rated as a 4-star fund by Groww.
  • AUM of close to ₹ 1570 Cr.
  • Age is around 5 years.
  • Past 1 years and 3 years return is 21.97% and 17.64% per annum respectively
  • Has consistently outperformed its benchmark BSE S&P 100 and NIFTY 50 since its launch.
  • The top portfolio holdings of the fund include ICICI Bank Ltd., HDFC Bank Ltd., Bajaj Finance Ltd., Yes Bank Ltd., CCIL, PNB Housing Finance Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Financial services (100%).
  • Minimum SIP = ₹ 1000

Sundaram Rural India Fund

  • This fund has been rated as a 4-star fund by Groww.
  • AUM of close to ₹ 2198 Cr.
  • Age is more than 10 years.
  • Past 1 years and 3 years return is 18.5% and 19.43% per annum respectively
  • Has consistently outperformed its benchmark BSE S&P 100 and NIFTY 50 since its launch.
  • The top portfolio holdings of the fund include ITC Ltd., SBI, NCC Ltd., M&M Ltd., Maruti Suzuki India Ltd., ACC Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Consumer Goods (41.4%).
  • Minimum SIP = ₹ 1000

L&T Infrastructure Fund

  • This fund has been rated as a 5-star fund by Groww.
  • AUM of close to ₹ 1515 Cr.
  • Age is more than 10 years.
  • Past 1 years and 3 years return is 34.37% and 20.21% per annum respectively
  • Has consistently outperformed its benchmark BSE S&P 100 and NIFTY 50 since its launch.
  • The top portfolio holdings of the fund include CCIL, L&T Ltd., Bharti Airtel Ltd., Shree Cement Ltd., EIL, Cummins India Ltd., OCL India Ltd. etc.
  • The holdings are balanced across various sectors with maximum weightage given to Industrial Manufacturing (31.2%).
  • Minimum SIP = ₹ 500

These schemes have performed consistently doesn’t mean that they won’t have bouts of under performance. Keep track of the performance of your scheme and review your portfolio at least once a year.

All the above mentioned funds are the part of Groww 30: Top funds in every mutual fund category. 

Conclusion

LTCG tax, is one of the major amendment announced in Union Budget 2018, does not impact investors to that extent we think off. But will have a short term sentimental impact. Eventually, investors will adjust to this new tax regime keeping in mind that equity investments have yielded good returns over the long-term. Also, significantly pointed by many experts, the 10 per cent tax on LTCG is a subsidized rate and a prudent investment in equity mutual fund will help investors to achieve their long term goals even after this new tax regime.

More importantly, your equity mutual funds might get a massive uptick in coming times. With the government’s pro rural economy and upliftment efforts of micro, small and medium enterprises in the current budget 2018 announced, significant growth might occur now.

Read : 3 Reasons Why Equity Mutual Fund is Good Even After LTCG Tax

Happy Investing!

Disclaimer: view expressed here are of the author and do not reflect those of Groww.