Thursday, June 30, 2011

Dividend payout, reinvestment or growth?





Dividend payout:
A dividend is a share of profits in the fund paid out to you periodically. Assuming you have 100 units in your MF and the face value of each unit is Rs 10. Now, the fund house declares 50% dividend on the scheme. So, for every unit you will get Rs 5 (50% of Rs 10), that is Rs 500 for 100 units.


You might rejoice at the thought of getting some extra money periodically, but the catch lies in the fact that the NAV of the unit will fall by the amount of the dividend declared. This means, if the dividend paid out is Rs 5 and if the NAV were Rs 15 before dividend declaration, the NAV will fall to Rs 10. In other words, your own money is paid back to you in a different way. It is called the dividend payout option.


Tax implication:
The dividends received in equity funds, balanced funds (funds with more than 65% in equity) and debt funds are tax-free in the hands of the investor.


Dividend reinvestment:
In this option, the dividend paid out by the fund is ploughed back into the same scheme. Let's understand this with the same example described above. Instead of paying out the Rs 500 as dividend, the same will be reinvested, that is, it will be used to buy new units. This means, you will have additional units in your fund.


Tax implication:
Since dividends are tax-free in the investor's hands, the only tax impact here will be that of capital gains. In case of equity funds, if you sell units under this option within 1 year you will have to pay 15% short term capital gains tax. If you sell the units after 1 year, there is no tax. For this, the time period is calculated separately for each dividend reinvested.


In debt funds, you will have to pay tax according to your tax slab if you sell within a year, and long term capital gains tax at 20% if you sell after a year.


In this option you also get the benefit of tax deduction on dividends reinvested. This applies only in case of ELSS schemes. The dividends reinvested would be considered as an additional investment under section 80C.


Growth: 
Unlike the payout or reinvestment, growth option doesn't pay you any dividends. Instead the price appreciation reflects in the NAV. So, if a fund appreciates by 5%, the growth fund NAV will go up from say Rs 10 to Rs 15.


Tax implication:
In growth funds the important tax to consider is capital gains tax, that is, the tax that is charged on profits from sale of the units. Capital gains tax will be the same as that of dividend reinvestment option.


A point to note: In case of debt funds, there is a dividend distribution tax that the fund house has to pay on dividends declared. While there is no tax in the hands of the investor, this DDT will have a bearing on the returns. So a growth option would score over a dividend reinvestment option in case of debt funds, because if you choose a reinvestment option, you would be bearing tax on the dividends (although indirectly) and then capital gains tax as well.


How to choose:
Your need and the tax implication are the two main deciding factors. Here's a matrix to help you choose:


- Periodic cashflows + debt fund = Dividend option
- Periodic cashflows + equity fund = Dividend option
- No periodic cashflows + debt fund = Growth option
- No periodic cashflows + equity fund = Growth or dividend reinvestment option (watch out for short-term capital gains tax in case of dividend reinvestment option)


Source: Economic Times by Deepa Venkatraghvan 

Wednesday, June 29, 2011

Process for change of address in mutual funds after KYC Compliant??


Change of address is considered as Non financial Transaction. 
A non financial transaction is one which does not involve any unitization and has no financial impact. Some of them are- change in bank mandate, change of address, addition/ deletion in the name of the nominee, correction in email IDs, addition/ correction of contact details, change in the financial advisor and corrections in data capture in name or address.

How does the investor do these changes 
1.If you have done the KYC Process (KYC Compliant)
2.If you have not done the KYC Process


How do you get your address changed in the folios if you are a KYC Compliant?

If you are KYC Compliant through CDSL Ventures Limited ( CVL ), please fill in KYC Details Change Form for Individual( For Change of Address ). You would also require to provide attested copy of the Identity proof and address proof as mentioned on the form. To check if you are KYC complaint visit http://www.cvlindia.com Inquiry on KYC. You need to submit the change of address form and the relevant document at any of Point of Services (POS)


KYC Update - IF Process done prior to 1st Jan 2012



How do you get your address changed in the folios if you are not a KYC compliant?

 In case existing investors of the Mutual Fund who are not KYC compliant and wish to register a change of address, he needs to submit a request for Change of Address on a Transaction Slip or by way of a letter. The request needs to be submitted to any of  Investor Service Centers. Along with request letter, they will be required to submit a copy of any of the following self attested document evidencing the proof of address :

  List of documents admissible are ( *Documents having an expiry date should be valid on the date of submission.) :

1. Passport / UID/Voters Identity Card/Ration Card/Registered Lease or Sale Agreement of Residence/Driving License/Flat Maintenance bill/Insurance Copy.

2. Utility bills like Telephone Bill (only land line), Electricity bill or Gas bill (Not more than 3 months old ).

3. Bank Account Statement/Passbook -Not more than 3 months old.

4. Self-declaration by High Court and Supreme Court judges, giving the new address in respect of their own accounts.

5. Proof of address issued by any of the following: Bank Managers of Scheduled Commercial Banks/Scheduled Co-Operative Bank/ Multinational Foreign Banks/Gazetted Officer/Notary public/ Elected representatives to the Legislative Assembly or Parliament/ Documents issued by any Govt. or Statutory Authority.

6. Identity card/document with address, issued by any of the following: Central/State Government and its Departments, Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, Public Financial Institutions, Colleges affiliated to Universities and Professional Bodies such as ICAI, ICWAI,ICSI,Bar Council etc.,to their Members.

7. For FII/sub account, Power of Attorney given by FII/sub-account to the Custodians (which are duly notarized and/or apostiled or consularised) that gives the registered address should be taken.

8. The proof of address in the name of the spouse may be accepted.

Refer this: 

Revision in Know Your Client (KYC) Norms and Procedure with effect from January 2, 2012


For email and contact details refer this link
Download email and contact update form
https://www.camsonline.com/InvestorServices/COL_ISReqstForms.aspx#

Sunday, June 26, 2011

Process to follow for redemption and change in Bank details in mutual funds??


As per the recent AMFI best practices, for any change in bank mandate that is given along with the redemption, there is a cooling period of 10 days after which the redemption amount is sent out to the investor. In the interim, letters are sent to the investors informing them about the changes. 

However, AMC rules differs related to changes in bank mandate, as in some Amc's if you want to go for bank change then you have to provide details /Proof of old bank account as well as new bank account, if  on cheque,  the name of account holder is not mentioned then in such case the bank account statement or other necessary proofs should be given to do the changes in your bank details.

However, if there is a cheque copy and the account statement from the bank that is attached; then the amount can be released as per the norms practiced by the fund house. 


Therefore, it is always better to enclose these documents when there is a change in bank mandate given along with the redemption or alternatively, inform the fund house well in advance of such change to avoid any delay in receipt of the payment. 

Source: Business line


Friday, June 24, 2011

Explain Lock in Period if investment is in ELSS Funds Through SIP (Systematic Investment Plan)


When you invest in tax planning funds that is ELSS Funds (Equity Linked Savings Schemes) through SIP; each and every SIP investment is treated as a new investment, which means each instalment has to complete the compulsory three-year lock-in.
When you invest through SIP in an ELSS, the lock-in period for each installment will start from the day the investment is made.
But that should not pose to be a hindrance. If you are investing for the long-term, then a three-year lock-in on each installment should not be a problem to you. I don't  think it would be wise to invest substantial amounts at one go when the markets are all time high, i feel investing in sip in elss is best bet for the long term investor.


Example

Let's say you started your SIP from 1st april 2009, and paid the last installment on 10th April 2010. What would be the lock in?

The 3 year lock in for the units bought on 1 April 2009 would end on 1 April 2012, the 3 year lock in for the units bought on 10 May 2009 would end on 10 May 2012, and so on.
so it will follow like this:
 Sip Date                         Redemption date
1 April 2009                    1 April 2012
10th May 2009                  10 May 2012
10th June 2009                   10th June 2012
10th July 2009                    10th July 2012
10th August 2009               10th August 2012
10th Sept 2009                    10th Sept 2012    

10th October 2009              10th October 2012
10th Nov 2009                     10th Nov 2012
10th December 2009           10th December 2012
10th Jan 2010                       10th Jan 2013
 10th Feb 2010                      10th Feb 2013

10th March 2010                   10th March 2013
10th April 2010                      10th April 2013

 Which Option/plan to choose In ELSS Funds:

Second most important thing is choosing plan under ELSS funds, as best is to go with growth or dividend payout option as the reason is if you chosen dividend reinvestment option then your reinvested amount is also considered as new investment and will have lock in  for three years, and if in that scheme, you get dividend year after year so this process keep going long and long and you can't redeem all units as every year the dividend get lock in for another 3 years.

How to change the option if you have chosen Dividend Reinvestment in ELSS Funds:
so if you selected dividend reinvestment option but now you want to change, so you can switch the option from reinvestment to payout by filling simple request for switch in that scheme,.

About ELSS Funds:
Equity Linked Saving Scheme is an open-ended equity growth scheme that is offered by mutual funds in line with existing ELSS guidelines. The investments under this type of scheme are subject to a lock-in period of 3 years and, as per the Finance Act 2005, are allowed the benefit of income deduction up to Rs. 1,00,000. ELSS offers the benefits of tax saving and capital gains. Instead of spreading your investments across different instruments such as PPF, ELSS, NSC and infrastructure bonds, you can now invest the entire limit of Rs. 100,000 available under Sec 80C in ELSS.

Advantages of ELSS
  • Lock-in for three years prevents unnecessary withdrawals and allows your money to grow over a period of time
  • Investments in equity over a long-term delivers better returns than that of other savings instruments and similar to other equity schemes
  • Tax savings and high returns
  • Flexibility to Invest in small amounts through a Systematic Investment Plan


What are the guidelines for investing in mutual funds by an NRI?



NRIs can invest in Indian mutual funds through their NRE / NRO / FCNR account. The investment has to be made in Indian rupees only. He / she may also send a rupee cheque from abroad payable in a bank in India.

The investor status in the form should be marked as NRI and the bank details of his/her NRE/NRO account have to be mandatorily provided. For an NRI to invest, it is mandatory to maintain a bank account in India. AMCs do not accept an NRI application with an overseas bank account detail.

NRIs should be KYC-compliant to invest in mutual funds.
 
NRIs and PIOs can invest in Indian mutual funds. However, some mutual funds may not allow NRIs from certain countries to invest. NRIs must read the Scheme Information Documents / Statements of Additional Information to get information in this regard or contact the fund houses.

To invest on a repatriable basis, the amount should be received by inward remittance through normal banking channels (cheque/rupee denominated DD if it is from an overseas account) or by cheque drawn on or debited to an NRE / FCNR account of the non-resident investor. Redemption proceeds/ dividends will be credited to the NRE bank account or paid out by cheque in Indian rupees. The redemption proceeds and/or dividend can be repatriated in full.
The redemption proceeds will get processed in the normal course by submitting the redemption request form. The redemption proceeds will be paid by cheque or credited to the first unit-holder's account.

Where the purchase of units is made on a non-repatriable basis, the maturity proceeds/repurchase price of units (after payment of taxes) will not qualify for repatriation and may be credited to the NRO account.
   
NRIs are urged to register their email id while making a purchase. This would entitle them to a host of online services and facilities offered through www.camsonline.com. NRIs can get consolidated account statements, portfolio valuation statements and a lot more.

Source:  Investor Education Team of CAMS.

KYC: A single clearance for all capital market functions..



The Securities and Exchange Board of India (SEBI) is planning to bring uniform KYC (know your customer) guidelines for the entire capital market.


Addressing the CII Mutual Fund Summit 2011, on Wednesday, Sebi Chairman U K Sinha said that currently, different market intermediaries regulated by it have different KYC requirements. Hence, the need to have a uniform KYC under which an investor has to satisfy the requirement only once for all capital market transactions and that would be applicable across all intermediaries providing economy of effort.


The plan, though not finalised yet, may have a sweep in the financial markets similar to what the government is aiming with the unique identification number, or Aadhaar, project to plug the loopholes in delivering social welfare schemes.

Tuesday, June 21, 2011

How to transfer PPF account from one branch to the other of ( bank or post office)?




Any PPF account is transferable across any branch of the bank or to the head post office free of charge and, thus, you will not lose any amount on account of this transfer.


PPF Transfer is possible from a branch of bank to the post office and from a post office to the branch. However, it is not possible to do transfer from an individual to another.


The process to transfer is very simple, All you need to do is to fill up a PPF account transfer application (written request) to your  bank branch/post office, submit it along with your PPF passbook. (Don't forget to take the photo copies before submitting application and your PPF pass book)




 
Also Refer: 
 
 

SBI PPF Online Transfer - (PPF Linked with SBI online)

 
 

 
To transfer PPF account from a bank to a post office, the bank or its subsidiary will issue an account payee cheque or a demand draft for an outstation transfer. The account payee cheque will be in favour of the transferee head post office along with a certified copy of the ledger and all other related records in original. The account will be opened at the transferee head post office like any other new account is opened.



The Process of transfer will take 2-3 weeks time, You will get a call from your new branch (bank/post office) as your account is transferred, visit your new branch and collect the pass book. You need not have a bank account in the other branch (new bank branch).




PPF Transfer Application Form


 
Date:……………………
To,
The Bank Manager/Post Master (General)
………………………………………
………………………………………

Subject: Request for transfer of PPF A/c No…………………………………….


Dear Sir,

I have opened the above PPF Account in your Bank/Post office on ……………(date)
I have shifted my residence and presently staying in …………….. (Location)  
Address
……………………………………………………………….
………………………………………………………………….
………………………………………………………………….


 I intend to transfer my above PPF account from your bank to …………………………………………………… (Bank/Post office). You are therefore requested to please transfer my PPF account to ……….Bank/Post office as per address given below : ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

The original Bank/Post office PPF Pass Book for the entries made from …………(date)
to ……………………..(date) is enclosed herewith for doing the needful.


Thanking you,


Yours faithfully,



(………………………….)

Enclosure:  Original Pass Book








PPF Deposit Slip







Link: PPF Deposit Slip







 
 
About PPF ( Public Provident Fund)
The PPF Scheme had come into effect in the year 1968 under Section 80C introduced by the Central Government. It helps the general public to gain rebate of 8% on Income Tax by creating payments to the fund. Opening a PPF Account with SBI is very simple as anybody who is an adult citizen or above can open it for themselves or on behalf of minors under their custodians. Investment on PPF can be done with the minimum deposition of Rs. 500/- per year & the maximum of Rs. 100,000/- annually. (wef December 2011)
Refer this:




Eligibility
Individuals
Individuals on behalf of a minor


Minimum / Maximum Investment ( w.e.f. 01-12-2011 ) Minimum Rs.500/- per annum in multiples of Rs.5/-
Maximum Rs.100,000/- per annum



Duration
 15 years, Can be extended for one or more blocks of 5 years.
 Account can be discontinued but repayment of subscriptions along with  interest only after 15 years.



Rate of Interest
8.6% (w.e.f. 01-12-2011)per annum credited in account on 31st March every year calculated on the minimum balance between 5th day and end of the month.

Loans
Loan upto 25% of balance at the end of first financial year from third to sixth year. Second loan can be taken on full payment of first loan


Withdrawal
 Only one withdrawal allowed during any one year from sixth year. Withdrawal limited to 50% of the balance at the credit at the end of 4th year preceding the year in which the amount is withdrawn or the end of the preceding year whichever is lower.


The account extended beyond 15 years; partial withdrawal allowed up to 60% of the balance to the credit at the commencement of the extended period.



Update (July 01, 2011):I did this process very recently, and it took 2 weeks times, the process for change is successfully done and now i got my new pass book of PPF account. And in the meantime i got a letter of confirmation from my old branch of PPF account informing that my account is now closed and transferred to new bank (branch) with details of new bank branch address and total amount transferred. 

Taxation of mutual funds gains for Individuals _ Under Direct Tax Code

For your convenience, the table given summarises how the taxation rules will change from the present norms to when DTC comes into force from 1st April 2012.




An investor earns from mutual funds in two ways: either via the dividend paid out by the scheme, or via capital gain, which arises when you sell the units of the scheme.

At present, dividend earned from equity funds is tax free.

Now, as per the Direct Tax Code (DTC), dividend from equity mutual funds will be taxed at the rate of 5 per cent.

This will be deducted by the fund house itself before it is credited to your account.

As for capital gains, the long-term capital gains (LTCG) tax on equity schemes remains zero, but tax rate on short-term capital gains (STCG) will be half the applicable income tax slab rate, as against the current rate of 15 per cent.

In case of debt-oriented mutual funds, the dividend received will be added to your income and taxed at normal slab rates as applicable. Earlier dividend from debt mutual funds was taxed at the rate of 12.5 per cent. As for capital gains tax, the tax rate will be the same for STCG and LTCG. Your gains will be added to your income and taxed according to the bracket you fall under.


Further, tax-saving ELSS (equity-linked saving schemes) funds will no longer get tax exemption under DTC.

Monday, June 20, 2011

How To measure mutual Fund Risk!!!

There are five main indicators of investment risk that apply to the analysis of stocks, bonds and mutual fund portfolios. They are alpha, beta, r-squared, standard deviation and the Sharpe ratio.




Standard deviation (SD): Standard deviation measures the volatility of the returns from a mutual fund scheme over a particular period. It tells you how much the fund's return can deviate from the historical mean return of the scheme. If a fund has a 12% average rate of return and a standard deviation of 4%, its return will range from 8-16%.

Sharpe Ratio: This measures how well the fund has performed vis-Ã vis the risk taken by it. It is the excess return over risk-free return (usually return from treasury bills or government securities) divided by the standard deviation. The higher the Sharpe Ratio, the better the fund has performed in proportion to the risk taken by it.

Alpha: The simplest definition of an alpha would be the excess return of a fund compared to its benchmark index. If a fund has an alpha of 10%, it means it has outperformed its benchmark by 10% during a specified period.

Beta: It measures a fund's volatility compared to that of a benchmark. It tells you how much a fund's performance would swing compared to a benchmark. A fund with a beta of 1 means, it will move as much as the benchmark. If a fund has a bet of 1.5, it means that for every 10% upside or downside, the fund's NAV would be 15% in the respective direction.


R-squared: The R-squared of a fund advises investors if the beta of a mutual fund is measured against an appropriate benchmark. Measuring the correlation of a fund's movements to that of an index, R-squared describes the level of association between the fund's volatility and market risk, or more specifically, the degree to which a fund's volatility is a result of the day-to-day fluctuations experienced by the overall market.
A statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index.
R-squared values range from 0 to 100. An R-squared of 100 means that all movements of a security are completely explained by movements in the index. A high R-squared (between 85 and 100) indicates the fund's performance patterns have been in line with the index. A fund with a low R-squared (70 or less) doesn't act much like the index.

If you are interested in investing in mutual funds, here are some terms you need to understand.


As you probably know, a mutual fund is an investment that pools together money from a number of investors. It then uses professionals to manage and invest this money?with the aim of achieving a return.


The mutual funds industry is regulated by the Securities and Exchange Board of India.


If you are interested in investing in mutual funds, here are?some terms you need to understand.


AMC
An Asset Management Company is the fund house or the company that manages the money.


The mutual fund is a trust registered under the Indian Trust Act. It is initiated by a sponsor. A sponsor is a person who acts alone or with a corporate to?establish a mutual fund. The sponsor then appoints an AMC to manage the investment, marketing, accounting and other functions pertaining to the fund.


For instance, ABN AMRO Trustee (India) Private Limited is appointed as the trustee to the ABN AMRO mutual fundABN AMRO Asset Management (India) Limited is appointed as its investment manager.
Various funds with different objectives can be floated under the umbrella of one parent.
So ABN AMRO Equity Fund, ABN AMRO Opportunities Fund and ABN AMRO Flexi Debt Fund are all independent schemes of ABN AMRO Mutual Fund. They are managed by the ABN AMRO AMC.


NAV

The Net Asset Value is the price of a unit of a fund. When a fund comes out with an NFO, it is priced Rs 10. Later, depending on the value of the investments, this price could rise or fall.


Portfolio
This is the term given to all the investments made by the fund as well as the amount held in cash.


Corpus
Let's assume a very small mutual fund has an initial investment of 1,000 units and each unit is worth Rs 10. Hence, the total amount with the fund is Rs 10,000. This is referred to as the corpus. Later, some other investors invest Rs 2,000. Now the corpus will be Rs 12,000 (Rs 10,000 + Rs 2,000).
The total amount invested (Rs 12,000) is called the corpus or the total amount of?money invested in the fund.


AUM
Assets Under Management is the total value of all the investments currently being managed by the fund.
Let's say?the corpus is Rs 12,000 but, due to a rise in the price of the shares it has invested in, the value of the units has increased. So the Rs 12,000 invested is now worth Rs 15,000. This figure is referred to as AUM.


Diversified equity mutual fund
This is a mutual fund that invests in stocks of various companies in various sectors.


ELSS
Equity Linked Saving Schemes are diversified equity mutual funds with a tax benefit under Section 80C of the Income Tax Act.
To avail of the tax benefit, your money must be locked up for at least three years.


Balanced fundA fund that invests in both equity (shares) and debt (fixed return investments) is known as a balanced fund.


Debt fund
These are funds that invest in fixed return investments like bonds. A liquid fund is one that invests in money market instruments these are fixed return investments of a very short tenure.

NFO
A New Fund Offering is the term given to a new mutual fund scheme.

SIP
A Systematic Investment Plan refers to periodic investing in a mutual fund. Every month or every three months, the investor will have to commit to putting in a fixed amount. This will go towards the purchase of units.
Let's say that every month you commit to investing, say,Rs 1,000 in your fund. At the end of a year, you would have invested Rs 12,000.
If the NAV on the day you invest in the first month is Rs 20, you will get 50 units.
The next month, the NAV is Rs 25. You will get 40 units.
The following month, the NAV is Rs 18. You will get 55.56 units.
So, after three months, you would have 145.56 units. On an average, you would have paid around Rs 21 per unit. This is because, when the NAV is high, you get fewer units per Rs 1,000. When the NAV falls, you get more units per Rs 1,000.

Taxation of capital gains from sale of equity shares or equity oriented mutual fund !!!



Taxation of capital gains from sale of equity shares or equity oriented mutual fund (MF) depends on the period of holding. 

If the shares or MF are sold after holding for more than 12 months from the date of investment:

The capital gains are long-term capital gain . You have to pay only Securities Transaction Tax (STT) on such LTCGs, the amount is fully exempt from tax.

If the period of holding is not more than 12 months, the capital gains are short-term capital gains (STCG).
If STT is paid at the time of sale, the amount is taxable at 15.45 per cent (including education cess of 3 per cent).

In case of other MF investment that is other than equity that is debt and income funds, 

Long term capital gains are taxable at 10.3 per cent (including education cess), if indexation benefit is not claimed or at 20.6 per cent (including education cess) if indexation benefit is claimed.

The STCG are taxable at maximum marginal rate as applicable to the individual.


When to pay advance tax on such capital gains:

Tax on capital gains has to be paid within the timelines specified for advance tax to avoid penal interest. If you estimate that your total tax liability (after considering the tax deducted at source on estimated income including capital gains) is likely to exceed Rs 10,000 during the relevant financial year, advance tax needs to be paid.

Friday, June 17, 2011

Fund of funds!!!




A Fund of Funds (FoF) is, as the name suggests, a collection of funds. Fund of Funds are schemes that invest in other mutual fund schemes. The portfolio of these schemes comprise only of units of other mutual fund schemes and cash / money market securities/ short term deposits pending deployment. The first FOF was launched by Franklin Templeton Mutual Fund on October 17,2003.

A "fund of funds" (FOF) is an investment strategy of holding a portfolio of other investment funds rather than investing directly in shares, bonds or other securities.A fund of funds may be 'fettered', meaning that it invests only in funds managed by the same investment company, or 'unfettered', meaning that it can invest in external funds. In simple words,  fund of fund is a mutual fund which invests in other mutual funds. This method is sometimes known as "multi-management". So a FoF will hold units of several other schemes in the same manner as a scheme holding shares of different companies.

Fund of Funds can be Sector specific e.g. Real Estate FOFs, Theme specific e.g. Equity FOFs, Gold based that gold ETF's Fund,Objective specific e.g. Life Stages FOFs or Style specific e.g.Aggressive/ Cautious FOFs etc, or overseas fund funds invest across globe.

Types of fund of Funds
There are three types of fund of Funds:

1.Funds which invest in other domestic MFs example FT Life stage fund of funds, Kotak Equity Fof

2. funds which invest in domestic exchange-traded funds (ETFs) examples are Reliance Gold Saving, Kotak Gold Fund,  Quantum Gold Savings Fund
3. Funds which invest in overseas MFs.examples are Fidelity International Opp, Franklin Asian Equity, Kotak Global Emerging Mkt fund, BNP Paribas China-India Fund, ICICI Pru Indo Asia Eq-Ret, Fidelity Global Real Assets Fund, DSP BlackRock World Gold Fund - Growth


Tax treatment for fund of funds:
Gains from FoFs are taxed on a par with debt MFs even if the underlying funds are all equity funds.
  • Long Term Capital Gain Tax(after 1 year) of 11.33 % without indexation or 22.66 % with indexation will be applicable
  • Short Term Capital Gains (before 1 Year) applicable as per tax slab for the investor

What are benefits of investing in fund of Funds:
One could obtain combinations of the best performing funds of different fund houses. As a FoF would monitor the portfolio and make changes from time to time, investors would be saved from the botheration of tracking funds.

Disadvantages of Investing in Fund of Funds:
On the downside, expense fees on fund of funds are typically higher than those on regular funds because they include part of the expense fees charged by the underlying funds. In addition, since a fund of funds buys many different funds which themselves invest in many different stocks, it is possible for the fund of funds to own the same stock through several different funds and it can be difficult to keep track of the overall holdings.

Thursday, June 16, 2011

Which Option to choose For mutual fund Investment!!!


Mutual fund houses offer two kinds of options to choose from that is Growth and dividend.
And in dividend plan we have again two options to choose from that is Dividend Payout or Dividend Reinvestment.
Choosing right funds from available schemes is always a tedious job for a newbie investor. Another dilemma is whether to go for growth or dividend option. Choosing the correct option is perhaps as important to the health of the investment as choosing the particular mutual fund is.

What one should consider at the time of selection is your investments needs and goals and whether you want to grow your money and keep investing for longer period or you are more interested in partial withdrawal in the form of appreciation from your investment in the form of dividend. Those who want to create wealth or have a goal to fulfill over a longer period of time should choose the growth or dividend reinvestment option. Typically, those with regular income flow are advised to invest in the growth option. Those looking for a regular income such as retirees, should pitch for the dividend option


First Understand the options & how they are taxed now:

1. Growth option: The gains made by a mutual fund scheme are re-invested. Therefore, the net asset value (NAV) moves up. Growth investors earn by selling the scheme at a higher NAV at a later date. If you stay invested in a growth scheme for more than a year, your investment will be tax-free.


2.  Dividend Payout option: The dividend payout option does not re-invest the profits made by the fund though its investments. Instead, it is given to the investor from time to time i.e the gains are periodically distributed as dividend, so the NAV drops to the extent of the dividend, whenever it is paid out.

3.  Dividend Reinvestment option: Dividend re-investment is a facility to put the dividend back into the scheme, thereby buying up some more units. Dividend Reinvestment option is very similar to Growth option as in both the cases the value of fund keep increasing, only difference is NAV, that is in reinvestment person have more units  where as in growth the person is having increased Nav. (but value of both the funds is very same, no great difference)  in very simple words in growth the unit value keep increasing whereas in dividend reinvestment units gets increasing.

The other great advantage of choosing reinvestment option is one can change able to change the option from dividend reinvestment to dividend payout  by simply filling the switch form and can easily switch as per the changing investment needs, where as in Growth option this is not possible as for that switch the person have to  pay STT (security transaction tax as in such case switching means first redeeming the units and then buying units in dividend option).

TAX TREATMENT OF INVESTMENTS (Dividend)





Dividend Distribution Tax in equity Funds:
By virtue of proviso to section 115 (R) (2) of the Act, equity oriented schemes are exempt from income distribution tax. As per section 115T of the Act, equity oriented fund means such fund where the investible funds are invested by way of equity shares in domestic companies (as defined under the Act) to the extent of more than sixty five percent of the total proceeds of such fund.


Dividend Distribution Tax for debt funds:
i) For Money Market and Liquid Schemes:
As per section 115R of the Act, the dividend distribution tax for Money Market and Liquid Fund is 25% plus surcharge.

ii) For Schemes other than Money Market and Liquid Schemes:
As per section 115R of the Act, income distribution tax shall be levied at 12.5% plus surcharge for distribution made to individuals or HUF and for any other person at 20% plus surcharge.



Changes Post Direct Tax code:


The Direct Taxes Code Bill, proposes to impose a five per cent dividend distribution tax on mutual fund houses and life insurers on income distributed by them.

This norm is applicable to mutual fund scheme and insurance policy that invest over 65 per cent of the total proceeds in equity shares, or equity-oriented mutual funds. Rest of the schemes and policies would be taxable on the income-tax rates.

So, if you have opted for the dividend option of a mutual fund scheme, you stand to earn slightly less once DTC comes into effect from April 2012.

Currently, there is no DDT applicable to equity fund schemes or insurers on income distribution to unit/policy holders. Debt schemes pay 14.16 per cent for individuals on dividend distribution.

Experts say the dividend yield for most mutual fund schemes is in the range of 6-8 per cent.

Say, your scheme earns a dividend of 8 per cent, after paying 5 per cent as DDT you will earn 7.50 per cent. Your dividend income will suffer a dent of 50 paise.



Conclusion: So post Direct Tax code its better to go with growth option to avoid 5% dividend distribution tax on dividend option in equity funds.


Dividend in Birla Sun Life Dividend Yield Plus!



Birla Sun Life Mutual Fund has declared a dividend of 6% (Rs. 0.60 per unit on Face Value of Rs.10) under the dividend option of Birla Sun Life Dividend Yield Plus. The record date for dividend has been fixed as June 17, 2011.

All investors registered in the Dividend Plan of the above scheme as on June 17, 2011 will receive the dividend.

Scheme details:
Birla Sun Life Dividend Yield Plus is an open ended growth scheme. The investment objective is to provide capital growth and income by investing primarily in a well diversified portfolio of dividend paying companies that have a relatively high dividend yield.

Notice-cum-Addendum from ICICI Prudential MF: Process for change in bank mandate!!!


Wednesday, June 15, 2011

Dividend in Franklin India Prima Fund!


Franklin Templeton Mutual Fund has announced a dividend of 60 per cent (i.e. Rs. 6 on face value of Rs. 10) under the dividend option of Franklin India Prima Plus. The record date for the same has been fixed as 17, 2011

All investors registered in the Dividend Plan of the above scheme as on June 17, 2011 will receive the dividend. The NAV of the scheme as on June 14, 2011 under the dividend option was Rs.  42.919

Documents required in case of death of the first unit holder (Transmission of mutual fund units)



Investment in a mutual fund can be made in a single name or in a joint mode with three people. The mode of holding can be anyone/survivor or joint.

In case of the demise of one of the unit holders, the following situations may arise. Here is how you can tackle them:

Documents required in case of death of the single holder without nominee are mentioned below :
  • Copy of Legal Heir Certificate (duly attested). Tahsildar or Revenue Officer should issue this legal heir certificate OR Succession Certificate OR Court order/ Probate duly attested by a Notary.
  • No Objection Letter from other legal heirs (duly attested)
  • Letter from the nominee
  • Copy of Death Certificate (duly attested)
  • Signature of the claimant (who is requesting for redemption),duly attested by the banker along with the bank details
  • Indemnity on Rs.20 stamp paper
Documents required in case of death of one or more unit holders:

  • Letter from surviving unit holders to the AMC/ Mutual Fund requesting for transmission of units,
  • Death Certificate in original or photocopy duly notarized or attested by gazette officer or a bank manager*,
  • Bank Account Details of the new first unit holder as per specified format along with attestation by a bank branch manager* or cancelled cheque or bank statement bearing the account details and account holders name.
  • KYC of the surviving unit holders, if not already available.
Documents required for Transmission in case of Single holding or on death of all units holders and Nominee is available (registered in mutual fund records) 




Death Certificate/s in original or photocopy duly notarized or attested by gazette officer or a bank manager*,

Bank Account Details of the new first unit holder as per specified format along with attestation by a bank branch manager* or cancelled cheque or bank statement bearing the account details and account holders name.

Indemnity duly signed and executed by the nominee(s) in the specified format, if the transmission amount is equal to or more than the Threshold Limit as determined by the AMC/ Mutual Fund. (Currently the "Threshold Limit" is Rs. Five lakhs per investor/PAN).


Documents required: (format)
Click here for Format for banker's attestation of bank details of nominee

Click here for Indemnity format where nominee is registered
Click here for Legal heir affidavit


Complete set of forms
Forms:











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