Generally investment in mutual fund provides certain incremental advantages when compared to investment made directly in individual securities in the capital market. Highlighted below are some facts and key advantages of investing in MTB unit und:
- As it is an open end fund, units will be traded at close to NAV
- Diversified portfolio will help in lowering investment risk of the Investor
- As the fund will be professionally managed, investors will be relived from the emotional stress associated with the day to day management of individual investment portfolio
- The investor will be able to save a great deal in transaction/operating cost as he/she will have access to a larger number of securities by purchasing a single unit of the fund
- Dividend income of the fund will be tax free up to a certain limit as permitted by the finance act
- Mutual funds including MTB Unit fund will enjoy a 10% (Ten percent ) reserved quota for all initial public offerings (IPO). IPOs in Bangladesh have historically performed very well relative to the market index and have positively contributed to mutual fund performance .
Tax Advantage of Investing in MTB UNIT FUND:
Tax advantage on Income: Income from a mutual fund or a unit fund up to BDT 25,000.00 (Twenty-Five Thousand) is exempted from tax under Income Tax Ordinance 1984.
Investment Tax credit: According to the current Income Tax Ordinance (ITO) 1984, section 44, amended in 2016, amount of allowable investment is – actual investment or 25% of the total (taxable) income or BDT 15,000,000.00 whichever is less.
Tax rebate rate is from 15 to 10 as per following schedule:
|Total income||Rate of Tax Rebate|
|Up to BDT 10,00,000.00||15% of eligible amount.|
|From BDT 10,00,001.00 to BDT 30,00,000.00||a) BDT 250,000.00 of eligible amount at the rate of 15%.|
|b) Remaining of the eligible amount at 12%.|
|Above BDT 30,00,000.00||a) BDT 250,000.00 of eligible amount at the rate of 15%.|
|b) Next BDT 5,00,000.00 of eligible amount at the rate of 12%.|
|c) Remaining of the eligible amount at 10%|
Example: An individual earning total annual income BDT 5,000,000.00 in a year may have allowed investment for tax rebate BDT 1,250,000.00 (BDT 5,000,000.00 multiplied by 25% allowed).
As this amount BDT 1,250,000.00 is lower than BDT 15,000,000.00, the person’s eligible amount for tax rebate is BDT 1,250,000.00.
The individual will have total tax rebate calculated as under:
|a) 1st BDT 250,000.00 of eligible amount at the rate of 15%||= BDT 37,500.00|
|b) Next BDT 5,00,000.00 of eligible amount at the rate of 12%||= BDT 60,000.00|
|c) Remaining of the eligible amount i.e Next BDT 5,00,000.00 at 10%||= BDT 50,000.00|
|Total rebate||= BDT 1,47,500.00|
This investor can reduce tax liability by BDT 1, 47,500.00 by investing in MTB Unit Fund.
***This is a simple illustration. The amount can vary and will depend on individual circumstances. Also, please note that the tax rebates may change as per Government’s decision. Investors are advised to consult with tax advisor, if required.