Equity investing has found takers across generations, lured by the prospect of high returns, often in the ballpark of 12 to 15 per cent annually. But what many overlook is that the number you see isn't the number you keep.
Take this: investing Rs 10,000 monthly through a SIP in an equity mutual fund over 10 years, assuming a 12 per cent annual growth, should grow your money to Rs 23,23,390. Of this, your principal would be Rs 12 lakh and the gain Rs 11,23,390.
Now enters taxation. Since the fund was held for over a year, long-term capital gains (LTCG) tax applies. But only the gains exceeding Rs 1.25 lakh are taxable, thanks to the exemption under current rules.
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Subtract that, and you're left with taxable gains of Rs 9,98,390. At 12.5 per cent tax, that's Rs 1,24,798 gone to the tax department.
Instead of walking away with Rs 23.23 lakh, you pocket Rs 21,98,591. The effective return? Around 10.5 per cent, not the 12 per cent headline figure.
It is recommended to sift the return through the taxation filter to understand what is real.
