Can You Reduce The Taxes On Your Mutual Funds?

Can You Reduce The Taxes On Your Mutual Funds?

Mutual funds are managed funds and there are a variety of distributions that contribute to the earnings in your account. These are great ways to add diversification to your portfolio even when you are just starting out. For many more such reasons, mutual funds are great to add to your investment portfolio. These are as popular as trading independently which can now be done with the help of automation tools like Ethereum Code. Reading an Ethereum Code review would help you know about the tool and how to accommodate it in your investment plan. With a tool like this to assist you and with a profitable mutual fund added to your plan you can surely make a good amount of profits effortlessly. But with every little income added to your account comes taxes to be paid. Are there ways to reduce the taxes imposed on the earnings made through mutual funds?

Taxation conditions differ for mutual funds

Mutual funds are not like your regular income. So the tax norms might be different from the regular income tax rates. A lot depends on the tenure of the mutual fund chosen. The capital gains earned would be taken into account along with the holding period when the tax is to be calculated. Long-term holdings would be charged differently where the duration criterion differs based on the type of mutual fund you choose. Debt mutual funds which are best known for their liquidity have a longer duration to be termed as long-term gains. For the more popular choices – the balanced funds and equity funds, a holding period of more than one year is taken as long term.

There are tax saving funds to pick

Every type of mutual fund you pick might have a tax saving variant. This is a place where you might have to forego your liquidity features a little. Consider the long-term equity mutual funds for example- these can fetch some impressively huge returns in the long term and they can be tapped tax-free.

Stick with periodic distributions

When you have the choice of going for lumpsum distributions and periodic distributions choose the latter. The former comes with a higher tax rate. This should be remembered when you pick the asset allocation options in your mutual funds.

Tax loss harvesting

This is one place where losses can be a boon. This strategy can be used when you have a huge tax to be paid where small losses can be used to reduce the tax burden.