What are the tax implications for SIP investment? If I start the SIP on January 1, 2007, and continue it for a year, can I sell all the units at the end of the year (January 2008)?
—Shailesh
You can sell the units when you want. But you will be taxed if you do not hold them for at least a year. The SIP is nothing but a regular investment at defined periodicity. Hence, each installment of your SIP investment in an equity fund will be liable for short-term capital gains tax if not held for a minimum period of 12 months. So the units bought in February will be exempt from tax only if you sell it 12 months after February. And so on and so forth. You have to hold the units one year from the date you bought them, not from the date you started the SIP.
(Source: Value Research)
Mutual Fund News update from Nishit Doshi (9824021680) a leading MF Advisor based in Ahmedabad. Gujarat.
Tuesday, September 30, 2008
Switch to an ELSS Fund
Please advise whether investment switched from an ordinary equity fund to ELSS fund would be eligible for computing deductions under section 80C of that year? -Arvind Chandorkar
Yes, you can take 80C benefit in same financial year by switching from equity fund to ELSS fund. But if your tenure of investment in equity fund is less than a year then you have to pay short term capital gains tax while you switch.
(Source: Value Research)
Yes, you can take 80C benefit in same financial year by switching from equity fund to ELSS fund. But if your tenure of investment in equity fund is less than a year then you have to pay short term capital gains tax while you switch.
(Source: Value Research)
Equity Speciality Funds Equity Speciality Funds
Is the DSPML World Gold Fund an Equity Fund or a Debt fund? On your site it is classified as an Equity specialty fund, but I am told that for tax calculations it is considered as a debt fund. Could you kindly clarify the same for me that what are the tax implications for this fund?
-Dr. Deepak S Ray
Yes, the tax treatment for this fund is same as debt fund because more than 65 percent of the fund corpus is invested in stocks of foreign companies. Long-term capital gain tax is zero only in the case of equity funds. Equity funds are defined as those which invest more than 65 per cent of their assets in Indian companies. Any fund not fulfilling this criterion will be subjected to the rules of debt fund.
DSPML World Gold fund is an equity based fund of funds mutual fund scheme. A large portion of this fund is invested in overseas mutual fund schemes, which in turn invest in stocks related to gold mining companies.
(Source: Value Research)
-Dr. Deepak S Ray
Yes, the tax treatment for this fund is same as debt fund because more than 65 percent of the fund corpus is invested in stocks of foreign companies. Long-term capital gain tax is zero only in the case of equity funds. Equity funds are defined as those which invest more than 65 per cent of their assets in Indian companies. Any fund not fulfilling this criterion will be subjected to the rules of debt fund.
DSPML World Gold fund is an equity based fund of funds mutual fund scheme. A large portion of this fund is invested in overseas mutual fund schemes, which in turn invest in stocks related to gold mining companies.
(Source: Value Research)
Taxation on MIPs
I would like to know about the tax treatment for MIPs? Are their returns treated as dividends or as capital gains?
—Shailesh Rawat.
Tax treatment of returns from Monthly Income Plans (MIPs) depends on the way you derive them. If you opt for dividend plan, then like all debt funds, MIPs are liable for Dividend Distribution Tax (DDT) which is 12.5 per cent for debt funds.
If you choose the growth plan, all gains will be treated as short-term or long-term depending on your period of holding. Any short-term gain (less than 1-year holding) from debt funds is added to your income. Long-term gain from MIPs is taxed at 10 per cent without indexation or 20 per cent with indexation, whichever is lower.
Deriving gain from an MIPs Growth option through Systematic Withdrawal Plan (SWP) could be more tax efficient than dividend plan. SWP is redemption of units worth predefined amount and periodicity. Besides, you will also have a greater control on your cash inflows.
(Source: Value Research)
—Shailesh Rawat.
Tax treatment of returns from Monthly Income Plans (MIPs) depends on the way you derive them. If you opt for dividend plan, then like all debt funds, MIPs are liable for Dividend Distribution Tax (DDT) which is 12.5 per cent for debt funds.
If you choose the growth plan, all gains will be treated as short-term or long-term depending on your period of holding. Any short-term gain (less than 1-year holding) from debt funds is added to your income. Long-term gain from MIPs is taxed at 10 per cent without indexation or 20 per cent with indexation, whichever is lower.
Deriving gain from an MIPs Growth option through Systematic Withdrawal Plan (SWP) could be more tax efficient than dividend plan. SWP is redemption of units worth predefined amount and periodicity. Besides, you will also have a greater control on your cash inflows.
(Source: Value Research)
Exit Load on ELSS
I had bought Reliance Mutual Fund ELSS on 13-10-2005. Now, on completion of 3 years I have to withdraw it. Can you please suggest me how should I go ahead with this and will the amount have an exit load? Will the profit be taxable?
—Sanjay Patil
Equity Linked Saving Schemes contains a 3-year lock-in period after which you can withdraw your money from the fund without paying any exit load. Since it is an equity fund held for more than a year, your profits are exempt from tax.
(Source: Value Research)
—Sanjay Patil
Equity Linked Saving Schemes contains a 3-year lock-in period after which you can withdraw your money from the fund without paying any exit load. Since it is an equity fund held for more than a year, your profits are exempt from tax.
(Source: Value Research)
Monday, September 29, 2008
Should people buy insurance product mixed with SIP plans offered by Birla Sun Life and Reliance Mutual Fund?
It is an attractive thing. You are getting a term cover for free. The product or the term cover for free is offered by two fund families, which offer a reasonable range of good equity funds. So, if one has to get into equities steadily over time then these fund companies offer a good choice. It comes for free so get it and you do not have to put a lot of money upfront to buy it. So, getting a meaningful thing for free is a good idea and people should consider it. But, I do not think it’s a missed opportunity because the term cover which you get even when it comes to an end, you are not at a significant loss because term cover for a lot of people comes as a cheap avenue but not too many investors go for it. Anyway you will get a substitute for a very low cost. For somebody who is getting this benefit, it is almost like getting something worth Rs 2,500 per annum for free.
If I were to choose two funds, I would choose Birla Sun Life Equity and Reliance Growth. Reliance despite having too many equity funds, the choice of good equity fund is getting limited.
(Source: value research)
If I were to choose two funds, I would choose Birla Sun Life Equity and Reliance Growth. Reliance despite having too many equity funds, the choice of good equity fund is getting limited.
(Source: value research)
What would be your view on Tata Indo Global Infra Fund, NFO for the investors?
Investors should exit this fund for a different reason. Infrastructure is not an opportune thing to stick around with because of the phase of market we are into. It always helps to diversify. Many of these funds are invested all over the world. Some of the markets and themes might still work. So, for most investors the only mantra to follow is ‘diversify’ and global diversification could be helpful. It is a fund, which invests only 35% of its money through a fund or a fund vehicle. But the rationale to get out of this fund is that it is an infrastructure fund. It is theme, which is unlikely to work with India or elsewhere in the immediate future.
(Source: value research)
(Source: value research)
On what parameters should one select a fund?
One should look for the history. If you look at DWS Investment Opportunity on most logical yardsticks, this fund will qualify. This fund has a good history and is evenly spread. It is a diversified fund and has sustained performance on a risk adjusted basis. It has given decent performance; decent return as well. So on those yardsticks; it still qualifies as a good fund.
The problem that the investor could face is reconciling with a 40% loss on a one-time investment. To prevent such situations one should be investing regularly not lump-sum in such investments.
For investing in equity, first checkpoint should be, are you investing for few years? The most important thing is one should not invest at one time and at one go because these kind of situations can arise with equity investments all the time. You see 15-20-25% decline even in a roaring bull market and that could be a test of patience and test of your nerve the moment you invest in equity. To guard that you cannot do anything about the market, the index but you can certainly do something about the way you invest.
Midcap funds are difficult to manage when they become very large. They are constrained by liquidity issues not in a roaring bull market but in a bear phase like this. They certainly face liquidity issues and concerns, which is difficult to address and handle.
(Source: value research)
The problem that the investor could face is reconciling with a 40% loss on a one-time investment. To prevent such situations one should be investing regularly not lump-sum in such investments.
For investing in equity, first checkpoint should be, are you investing for few years? The most important thing is one should not invest at one time and at one go because these kind of situations can arise with equity investments all the time. You see 15-20-25% decline even in a roaring bull market and that could be a test of patience and test of your nerve the moment you invest in equity. To guard that you cannot do anything about the market, the index but you can certainly do something about the way you invest.
Midcap funds are difficult to manage when they become very large. They are constrained by liquidity issues not in a roaring bull market but in a bear phase like this. They certainly face liquidity issues and concerns, which is difficult to address and handle.
(Source: value research)
Ok and what about the DWS Investment Opportunity Fund?
Anybody who invested in January can look with a hindsight that it was a bad timing for any investment made in equity, whether it be a good fund or a bad fund. The good thing is that DWS Investment Opportunity is a good fund, it has fallen as much as most other funds, a little less in fact. If the investor invested at the peak, he/she might be very disappointed. So, it is looking as more disappointing but I will recommend this fund as an investment. The investor should be guided more by needs. If one has to invest more money, one can continue investing more money. If one needs money in four-six months, one should pullout this money because I don’t see a revival of the market in six-months, one-year or one and a half year either.
(Source: value research)
(Source: value research)
Your advice to investors at this point
I would urge most investors to keep away from new fund till they actually mature. Most of the time investors are tempted that here is a big opportunity and they have to participate. The investor should stay clear of relatively new fund till they are at least three-years old. Even three-years is not enough sometimes because you can have a phase when in the three-years, there could be just one phase of the market.
A fund has to go through both phases of the market; the up cycle and the down cycle for an investor to understand. How a fund does for most common investor is important to be known. It is important for a fund to be able to make money in a rising market and a fund is able to better protect money in a falling market. One can’t get to see this in just one-year, six-months, two-years time.
(Source: value research)
A fund has to go through both phases of the market; the up cycle and the down cycle for an investor to understand. How a fund does for most common investor is important to be known. It is important for a fund to be able to make money in a rising market and a fund is able to better protect money in a falling market. One can’t get to see this in just one-year, six-months, two-years time.
(Source: value research)
What is your take on AIG Indian Equity Fund?
AIG Indian Equity Fund has proved to be an average fund so far. It has declined just as much as most other equity funds and participated reasonably in the equity funds. If the investor is getting concerned about the news about AIG, I don’t think there is any concern on that front.
On a standalone basis, if the investor is evaluating the fund it is a one-year fund. It is little premature, one-year time is not enough to take a call on a fund but there is no problem in moving out. Investor can consider moving out to a proven fund with a reasonable and superior history.
(Source: value research)
On a standalone basis, if the investor is evaluating the fund it is a one-year fund. It is little premature, one-year time is not enough to take a call on a fund but there is no problem in moving out. Investor can consider moving out to a proven fund with a reasonable and superior history.
(Source: value research)
Should one shift from Reliance Vision to Reliance Growth?
It will be a worthwhile switch because Reliance Growth is showing no weakness, and moving that money will not be very taxing. I do not think in past one year one will be sitting on any meaningful capital gains. So there is no penalisation, constrain in taking this decision. If market turns around in six months to one year or one and half years time then one will be much better off with Reliance Growth than Reliance Vision.
(Source: value research)
Stay Away From New Funds
At a time when almost all equity funds are giving disappointing returns, Dhirendra Kumar, CEO of Value Research tells what should a Mutual Fund investor do and gives his take on various funds. According to him, an investor should stay away from new funds till they actually mature. "The investor should stay clear of relatively new fund till they are at least three-years old."
(Source: value research)
(Source: value research)
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