Just like anything else that includes money, the money managers and governments bodies would like to get some portion of the share of your profits. Over the years and geographies, the government taxes provide different treatments to short term and long term investments. Mutual Fund managers use entry and exit load to reimburse themselves for managing your money. Equity websites charge a transaction fee. All these aspects need to be considered when you compute the returns on your investments.
Short Term and Long Term Capital Gains Tax
In general, the short term gains are taxed higher compared to long term gains. The period for considering an investment as short term or long term is different for each country and even by asset class (short term considered for equities is 1 year and for a home is 3 years).
Usually, an equity or mutual fund investment for more than a year will be considered long term. Short term gains are taxed at a higher rate to discourage speculative investors that are on the lookout for quick gains. Long term gains are usually taxed at 10% or 40% based on your income in that year. A few countries do not have any tax on capital gains and these are termed as Tax Havens.
Additional Read – Capital Gain Tax Rates across the world: Capital gains tax (CGT) rates (pwc.com)
Dividend Tax
A few countries also charge taxes on dividends. Usually, dividends have to be clubbed to your income when you file for taxes.
I am not consulting on tax management and would suggest you have this discussion with your tax consultant. The reason I bring up these topics is that you need to factor in the expected tax payments when considering returns on your investments.
Additional Read – Dividend Tax Rates around the world: International Dividend Tax Rates Comparison: Where Does The US Stand? | TopForeignStocks.com
Entry and Exit Loads or Fund Management Fees
These are the fees charged by Mutual Fund Companies at the time of purchase or sale of the fund. In most cases, these loads are factored in the NAV of the fund. In that case, you don’t need to worry about calculating their impact on your investments separately. If not, then you need to factors these charges to calculate your returns from investments.
Equity Trading Fee
When you purchase or sell shares online, a fee is imposed on the sale/ purchase price. This is termed as Equity Trading fee.
