ELSS (Equity Linked Savings Scheme) is a type of mutual fund that primarily invests in equities and equity-related instruments. It comes with a lock-in period of 3 years and qualifies for tax deductions under Section 80C of the Income Tax Act, 1961.

By investing in ELSS, an investor can claim a deduction of up to ₹1.5 lakh per financial year, thereby reducing their taxable income. Apart from the tax benefit, ELSS also offers the potential for higher long-term returns since it invests in equities, making it a popular choice for wealth creation and tax saving.

Equity Mutual Funds 

• Short-Term Capital Gains (STCG): If sold within 12 months → taxed at 20% flat.
• Long-Term Capital Gains (LTCG): If held for more than 12 months → taxed at 12.5% flat.

Debt Mutual Funds (majority invested in bonds/debt instruments):

• As per the new rule effective 1st April 2023, all capital gains (short or long term) are taxed as per your income tax slab rate.

Tax Harvesting is a smart way of reducing your tax liability on capital gains by booking profits and reinvesting.

Here’s how it works in India:

• Under the Income Tax Act, Long-Term Capital Gains (LTCG) on equity mutual funds up to ₹1 .25 lakh in a financial year are tax-free.
• Suppose your gains cross ₹1.25 lakh — you can sell units to realize profits up to ₹1.25 lakh (tax-free) and immediately reinvest the amount back into the same fund.
• This resets your purchase price and helps you save on future capital gains tax.

In simple words: Book profits up to the tax-free limit, reinvest, and reduce future tax liability — without changing your investment.

An arbitrage fund is a type of mutual fund that takes advantage of price differences of the same security in different markets (cash market and derivatives market). The fund buys in one market at a lower price and sells in another at a higher price, aiming to generate low-risk returns. Since these funds mainly rely on market inefficiencies rather than market direction, they are considered relatively safer among equity-oriented funds. Arbitrage funds are often used by investors looking for short-term parking of money with tax efficiency (equity taxation) and comparatively lower risk than pure equity funds.

Example: Suppose shares of Reliance are trading at ₹2,500 in the cash market, while the same shares are priced at ₹2,520 in the futures market. An arbitrage fund will buy Reliance shares in the cash market at ₹2,500 and simultaneously sell in the futures market at ₹2,520. The ₹20 difference (minus costs) becomes the profit for the fund, irrespective of overall market direction.

Before April 1, 2023, debt mutual funds held for more than 3 years enjoyed Long-Term Capital Gains (LTCG) tax at 20% with indexation benefit, which reduced the tax burden significantly.

However, the Finance Act 2023 changed the rules. Now:

• All gains from debt mutual funds are taxed as per the investor’s income tax slab, regardless of the holding period.
• There is no distinction between Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG) for debt funds purchased on or after April 1, 2023.
• Indexation benefit is no longer available on these investments.

What are Rolling Returns?

Rolling return is a way of measuring average investment returns over different time periods, instead of looking only at one start and end date.

For example, instead of checking Nifty returns from Jan 2010 to Jan 2020, rolling returns calculate 1-year, 3-year, or 5-year returns for every day, month, or quarter within that period.

This gives a clearer picture of how consistent an investment has been across market cycles, rather than judging it by just one fixed time frame.

It helps you see if a fund gives steady returns across time.

What are Trailing Returns?

Trailing returns are the annualized returns given by a mutual fund scheme over a given period of time calculated from one point to another. These returns calculate point-to-point return from an investment.

For instance, when an investment of ₹100 at the start of first year in a scheme grows to ₹161 at the end of fifth year, this means absolute return stood at ₹61. An annualized return would turn out to be 10 percent per annum for each of the five years. Since the returns are calculated based on a specific time period i.e., between the first day of the year 1 and the last day of fifth year – they are known as trailing returns.

Trailing returns show how much you would have earned from a fixed date in the past till today. They are simple but can be misleading, as results depend on start and end dates.

Rolling returns average returns across multiple periods, showing how consistent performance has been through market ups and downs.

 Rolling returns are more relevant for judging an investment’s true performance, while trailing returns are good only for a quick snapshot.

Hybrid Fund is a type of mutual fund that invests in a mix of asset classes – primarily equity (stocks), debt (bonds), and sometimes gold or other assets.
The idea is to balance growth (from equity) with stability and regular income (from debt).

By combining different assets, hybrid funds aim to provide:

• Better risk management compared to pure equity funds.
  
• Higher return potential compared to pure debt funds.
  
• Diversification in a single investment.

Considering the market trends, any prudent fund manager can change the asset allocation, i.e., he can invest a higher or lower percentage of the fund in equity or debt instruments compared to what is disclosed in the offer document. It can be done on a short term basis on defensive considerations i.e. to protect the NAV. Hence, the fund managers are allowed certain flexibility in altering the asset allocation considering the interest of the investors. In case the mutual fund wants to change the asset allocation on a permanent basis, they are required to inform the unit holders and give them option to exit the scheme at prevailing NAV without any exit load.

If you invest ₹1,00,000 per month via SIP for 10 years at an assumed 15% CAGR,

Your investment value will grow to approximately ₹2.63 crore.

• Total Invested Amount: ₹1.20 crore (₹1,00,000 × 120 months)
  
• Wealth Created (Profit): ~₹1.43 crore
• Maturity Value: ~₹2.63 crore

Set-Off and Carry Forward of Capital Losses (As per SEBI & Income Tax Rules)

1. Short-Term Capital Loss (STCL)

• STCL can be set off against both Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG).

   

• STCL cannot be adjusted against income from salary, house property, or business/profession.
  

2. Long-Term Capital Loss (LTCL)

• LTCL can be set off only against Long-Term Capital Gains (LTCG).

   

• LTCL cannot be adjusted against STCG or other income.
  

3. Carry Forward of Losses

• If the losses cannot be set off in the same financial year:

   

  • Both STCL and LTCL can be carried forward for up to 8 assessment years.

     

  • They can be adjusted only against eligible capital gains in future years.
    
• Important: To carry forward such losses, the Income Tax Return (ITR) must be filed within the due date under section 139(1) of the Income Tax Act.