The Six Scheme - Is It For You?

 


Earlier, we had heard about a six schemes of income Tax. Now, we are aware of another six scheme. The one-time income tax refund incentive is another scheme that many people think of but have not taken advantage of. It was mentioned earlier that the government's one-time scheme for determining who would file electronically for e-trends can be altered in the annual budget, depending upon industry officials. Whether this one time scheme will be tweaked further by the government, or whether the six scheme will still be in place, remains to be seen.

The six scheme has been in operation since 1961. Though it offers a lot of advantages to taxpayers with high valued transactions, it also has some disadvantages that deter many people from using it. One of the disadvantages that have impeded many people from fully utilizing the scheme is the absence of an alternative voluntary scheme. This means that if you cannot enter high value transactions, then there is no way that you can avail of the six scheme's special benefits.

Mutual funds and other market cap funds are generally eligible for the six scheme, depending on their earnings. Other market cap funds are not eligible because of lack of specified earnings for that year. However, mutual funds and other market cap funds do not always earn higher dividends than ordinary domestic or unlisted funds, and the market cap index may not exceed its fixed limit for a particular year seis scheme. It is difficult to determine whether an ordinary domestic or unlisted fund will miss the dividend allocation limit during the year, and this uncertainty complicates the investment decision of the investor.

Moreover, market cap funds and such other funds are subjected to much more rigid discount rates during the year. The discount rate is determined by the fund managers, and this rate is set each year. The managers, therefore, have considerable influence over the discount rate, making it difficult for investors to have a say in the matter. Even with this reservation, there are still a number of domestic or unlisted funds that are allowed to enter into the six scheme.

One more disadvantage of mutual fund schemes is that most of them are not eligible for long term investment. Short term schemes, however, can be viable options for several investors. They allow investors to invest for a shorter period and repay the money sooner. The longer term investment schemes, however, are only available to long term investors and, therefore, should only be used as a last resort.

Some investors also choose to use the six scheme when they have an extremely volatile portfolio. An extremely volatile portfolio, in this case, is one in which the returns are unusually high, while the risk of losing the invested money is unusually high. The fund managers may opt to sell all the assets in the portfolio, resulting in a severe drag on returns. In order to balance this out, the manager may choose to use the six scheme. The downside of this approach is that the investor may have to sell all of their assets, including those in their own portfolio, and may be left with a smaller wealth base than they would otherwise have.

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