One-time vs Income Tax vs Inflation: What is the value of your Rs 1 lakh co-investment within 20 years after taxation?

One-time and Income Tax and Inflation: When we invest in the amount, our investment value is likely to increase over time. In the long run, it could jump 10 times, 15 times or more. The power of complexity plays a role in transforming our small investments into giant corpus. However, when we exchange this payment, there are two factors that affect its value inflation and income tax. Inflation consumes most of the return on investment.

Once we cash in on the investment, we also have to pay tax on it.

Therefore, the actual value of our investment may be less than what is shown on the calculator.

In this article, we will gradually calculate the actual value of a one-time investment of Rs 10,000 in the mutual fund plan over 20 years, when the annual yield was 12% and the inflation rate was 5%, 6% and 7%, respectively.

See Understanding Estimates –

How one-time investment in mutual funds grows

Since the impact of market volatility decreases over time, one-time investment of mutual funds for stock-oriented funds is suitable for investors with a long-term investment range, and the power of compounding becomes more obvious over time.

If you invest Rs 25 lakh today and expect to get a 12% return from it, then this is how your investment grows in 10, 20 and 30 years.

In 10 years, the estimated capital gains will be Rs 5,26,462 and the estimated corpus will be Rs 7,76,462.

In 20 years, the estimated capital gains will be Rs 21,61,573 and the estimated corpus will be Rs 24,11,573.

In 30 years, the estimated capital gains will be Rs 72,39,981 and the estimated corpus will be Rs 74,89,981.

You will see that the value of investment grows faster due to the power of compound influence.

How inflation affects your returns

Suppose you invested in a mutual fund scheme of Rs 20 lakh, your annual return on investment is 12% and inflation is 6%. You have a 20-year investment vision.

Although your estimated corpus in 20 years will be valued at Rs 19,29,259 with an inflation rate of 6%, its actual value will be Rs 6,01,551.96.

Income Tax

When you redeem mutual fund investments, you must pay income tax on them even if you are changing the plan from the same fund home.

For equity-oriented funds, the long-term capital gains (LTCG) tax rate is 12.5% ​​with exemption rate of Rs 1,25,000.

Suppose your investment in LTCG is Rs 5 lakh. After exempting Rs 1.25 lakh, your taxable capital gain will be Rs 3.75 lakh and the estimated tax rate of 12.5% ​​is Rs 46,875. The value of the after-tax corpus is Rs 4,53,125.

Calculation of the story

We will calculate the inflation-adjusted value of Rs 10,000 investments in mutual fund plans over 20 years.

The annual return on investment is 12%, while inflation is 5%, 6%, and 7%, respectively.

The LTCG tax will be calculated at a rate of 12.5%.

Investment worth Rs 10,000 in 20 years

Over the 20 years, the estimated capital gains from investments of Rs 1 lakh, with an age of 12 per cent, would be Rs 8,64,629.31, while the estimated corpus would be Rs 9,64,629.31.

Income tax of Rs 9,64,629.31

After exemption of Rs 1,25,000, the taxable capital gain will be Rs 7,39,629.31 and the estimated tax will be Rs 92,453.66. The value of the after-tax corpus is Rs 8,72,175.65.

Valued in 20 years is Rs 8,72,175.65 (in 5% inflation)

Rs 3,28,713.96

Valued in 20 years is Rs 8,72,175.65 (in 6% inflation)

Rs 2,71,948.60

Valued in 20 years is Rs 8,72,175.65 (in 7% inflation)

Rs 2,25,386.85

(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)