Google

Sunday 30 March, 2008

Real Estate Mutual Funds spared of paying any income tax

The Economic Times news paper today reported that the uncertainty over the tax-treatment of real estate mutual funds is set to end soon. The government will exempt from tax the income generated by mutual funds which float schemes which aim to invest mainly in the stocks of realty firms.

According to a senior revenue department official, real estate MFs and other MFs that invest in shares of realty companies will be spared of paying tax on all income. The dividend income of unit holders who buy these products to reap the gains of a realty boom will also be tax-free.

Securities market regulator Sebi had approved the launch of real estate mutual funds almost two years ago. But the operational guidelines or norms are yet to be unveiled. Now, with greater clarity on valuation norms and the calculation of net asset value (NAV), the regulator may soon prepare the ground for the launch of real estate MFs, an official said.

Real estate MFs are expected to be close-ended, and the units of these funds will be listed on the exchanges. Such funds invest in both listed and unlisted securities of realty firms. They offer an opportunity to investors to take an exposure to a sector which offers reasonably attractive capital gains and steady dividend income.

However, the Reserve Bank of India (RBI) has not been comfortable with more investment flowing into realty given the dangers of an asset price bubble.

While real estate mutual funds will stand to gain due to favourable tax treatment, Real Estate Investment Trusts (REITs) that directly buy and sell property including apartments and shopping malls could be denied such benefits.

REITs are investment vehicles registered under the Indian Trusts Act. They are managed by professional real estate investment management companies and invest in properties. They also own and manage properties. An investor can buy units in an REIT just as he does in a mutual fund and earn a dividend income on the unit or shares of an REIT.

Ahead of this year’s budget, the capital market regulator had told the government to consider granting tax benefits to REITs on the lines of local mutual funds to encourage wider investor participation. But the revenue department, it appears, has turned down the proposal. Read More about REIT at Investing in Real Estate Part 2

The income-tax law now provides for a pass-through status for mf’s and all income earned by the fund is tax free. But any income distributed by the mutual fund attracts a dividend distribution tax, depending on the nature of the fund. The maximum rate of dividend distribution tax is 25%. But unit holders do not have to pay any tax on their dividend income.

Friday 28 March, 2008

Inflation at a 14 month high at 6.68%

Rising prices push inflation to a 14-month high at 6.68%

Inflation shot past the 6 per cent mark to touch its highest levels in nearly 14 months, bolstering speculation that the Reserve Bank of India may have to intervene with a rate hike in the near future.


Read more about inflation at What is Inflation ?

With the increase in inflation, there is less likelyhood of any decrease in interest rates as widely anticipated at the beginning of 2008. Also, growth of the economy could sloe down as the Finance minister has made a comment that containing inflation is more important than the economic growth of the country.

The widely-tracked Wholesale Price Index (WPI) rose 6.68 per cent for the week ended March 15, sharply higher than the previous week’s annual rise of 5.92 per cent, Government data showed on Friday. The rise in year-on-year prices of products was stoked by an increase in prices across all major heads of the WPI, with inflation in Primary Articles rising to 7.76 per cent during the latest reported week, up from 7.43 per cent during the previous week.

Inflation in primary articles has gone up by 376 basis points within a span of just six weeks, with items such as cereals (up 6.17 per cent), vegetables (3.87 per cent), milk (9.71 per cent), oil seeds (20.12 per cent) showing a spurt in prices during the latest week.

The inflation in the fuel group in the week ended March 15 ruled at an 80-week high, with mineral oil prices up over 9 per cent on an year-on-year basis. Inflation in the heavy-weight Manufactured Products also shot up to a 49-week high of 6.27 per cent in the week ended March 15, with dairy products (9.28 per cent), edible oils (19.03 per cent), cement (4.49 per cent) and iron and steel (26.86 per cent) showing major increase in prices.

Inflation for the latest reported week was the highest since a reading of 6.69 per cent on January 27, 2007, and the fourth consecutive week that the WPI-based inflation has ruled above the five per cent “tolerance limit” set by the RBI for 2007-08.

Thursday 27 March, 2008

Reliance to Launch Quant Mutual Fund

Reliance Capital Asset Management Ltd will convert its index fund into a quant fund with effect from April 18, the firm said in a notice recently.

Reliance Index Fund will give way to Reliance Quant Plus Fund that will invest at least 90 per cent of the assets in an actively managed portfolio of 11 to 15 stocks from S&P CNX Nifty index on the basis of a mathematical model.

The model will shortlist stocks on the basis of stock price movement and financial/valuation aspects, the fund house said. Those not willing to accept changes can redeem units without paying any exit load from March 18 to April 17, it added.

Quant Funds are funds that select the stocks in their portfolio on the basis of quantitative analysis. The fund managers managing these kinds of funds generally design a mathematical method based on which the stocks are taken in their portfolio. The model is developed on the basis of mathematical and statistical parameters. Reliance Mutual says that they have an in-house model which they are developing by looking at various parameters such as valuations, earning sentiments, price, momentum and share holders' value. They would also keep the portfolio's sector weightage in line with the Nifty's sector weight. However, in exceptional case this may be 20 per cent higher or lower.

India's only quant fund from Lotus India Asset Management (Refer to Lotus India AGILE Tax Fund) is down more than 25% so far this year. The fund has 11 large cap stocks in its portfolio with about 6 to 10 per cent of holding in each. 97 per cent of its holdings are in large cap stocks. 70 per cent of the portfolio is invested in three sectors which are the Energy Sector, Metal & Metal products and Financial sector


Wednesday 19 March, 2008

Changes in Entry/Exit Load rules of Mutual Funds

In line with the removal of entry load to an investor who is directly investing in a mutual fund (Read more about it at No More Entry Loan when investing directly), the Securities and Exchange Board of India (SEBI) has asked fund house 'not to charge' entry and exit load on bonus units and units allotted on reinvestment of dividend, with effect from April 1 2008.

An entry load is charged when an investor enters a mutual fund scheme. For redemptions made thereafter, investors are charged an exit load by the fund house. In the case of the dividend reinvestment option, the investor is assigned units for dividend that is re-invested in the scheme.

At times, the fund manager converts earnings from the scheme into units and distributes them as bonus units to the investors. These bonus units are then charged entry load and exit load.

The logical argument made against charging such loads is that it is investor's money that has contributed to the earnings and that investors are not entering the scheme afresh, so charging an entry load does not make any sense.

Monday 17 March, 2008

Some Finer aspects of Income Tax savings - Part 2

I am sure many of us will be sitting on unrealised losses (i.e losses which we have not booked by selling the loss making stocks and are holding them back in the hope that it will go up in the future) in the recent turmoil in the stock market. If the investments are less than a year old, you one put it to good use and lower your tax liabilities for the current financial year. As per law, one can book their losses on or before March 31 this year and buy back those positions in the next financial year i.e April 1st (provided you believe that the stocks will actually recover atleast in the next financial year). By doing so, the tax on short-term capital gains (if any) can be set off to the extent of the short-term capital losses. Also, at the same time one holds the assets that one had prior to booking the loss.

The key is to sell it before March 31st and buy it back on or after April 1st.

Short-term capital losses for the year can be set off against any capital gains, short or long term, reported under the head, income from capital gains. In case the gains are lower than the losses, the excess short-term capital losses can be carried forward and set off against capital gains for eight successive assessment years.

However the long-term capital losses on security transactions liable to securities transaction tax cannot be offset against any income, and cannot be carried forward for offsetting against any future gains.

However, investors have to bear in mind that short-term capital loss (STCL) first has to be adjusted with any short-term capital gains and only then with long term capital gains on transactions not liable to STT (like sale of gold, real estate, etc)

Friday 14 March, 2008

FMP Update

Here are some more launches of FMP that are available in the market at this point of time

Please read the following blogs to get details about what an FMP is and its advantages

1. Why invest in Fixed maturity plans ?

2. Fixed Maturity Plan - FAQ

The FMPs available in the market are:

ABN AMRO Fixed Term Plan- Series 10 Plan F
Tenure: 380 Days
Offer Opens: March 10, 2008
Offer Closes: March 17, 2008
Minimum Application: Rs 25000 for regular plan, Rs 25,00,000 for institutional plan
Exit Load: 2%

Birla Fixed Term Plan-Series AN
Tenure: 381 Days
Offer Opens: March 11, 2008
Offer Closes: March 17, 2008
Minimum application: Rs 5000 for retail plan and Rs 1, 00, 00,000 for Institutional plan
Exit Load: 2%-If repurchased on or before 180 days from the date of allotment
1%-If repurchased after 180 days from the date of allotment but before maturity date

SBI Debt Fund Series-13 Months-7
Tenure: 13 Months
Offer Opens: 7 March 2008
Offer Closes: 17 March 2008
Plan: Retail and Institutional
Minimum Application: Retail- Rs 5000, Institutional-Rs 50,000

Standard Chartered Fixed Maturity Plan-Yearly Series 19
Tenure: 384 Days
Offer Opens: March 7, 2008
Offer Closes: March 14, 2008
Plan: Plan A, Plan B
Minimum Application: Plan A- Rs 5000, Plan B-Rs 1, 00, 000
Exit Load: 2%

Some Finer aspects of Income Tax savings - Part 1

While most of you would be aware of the benefits of Section 80C and the fact that upto Rs 1 Lakh invested in Mutual funds or PPF, or PF or payment of insurance premiums etc, there are some other ways to pay lesser income tax and that is what i am going focus on.

Now a days, many people have bought houses and would be claiming the deduction upto Rs 1.5 lakhs for the interest paid in the case of self occupied houses.

However, there are many who have more than one house. In those cases, one can offset expenses made to maintain that house in the form of maintenance fee, interest paid against the borrowing etc and only pay the tax for the net amount. Also, there is no limit on the amount of deduction for the interest paid on the borrowings.

Say one has an income of Rs 1 lakh from an house property but has paid more than Rs 1 lakh in the way of interest for the borrowing made to buy this property, then the next loss can be offset against the income made by the person and shown as loss from the property. However, one cannot show any loss till such time that the house is completed or possession/registration taken for the house.

So go ahead and claim the loss if any or atleast end up lesser tax on the rental income in the case of the purchase of a house from borrowed money.

Tuesday 11 March, 2008

Frozen demat accounts to lose shares on PAN default

Economic Times in an article has reported that the government is set to act on a proposal to attach securities lying in frozen demat accounts of lakhs of investors if they do not furnish details of their Permanent Account Number (PAN) within a new deadline.

Even though quoting PAN is mandatory since 2007 for operating demat accounts, lakhs of investors have failed to comply with the directives. This had forced the depositories — which hold securities in the electronic form — to freeze the demat accounts of several investors. The failure of many investors to comply with this directive could also be due to the fact that some of these demat accounts were benami or illegal. The unique identity number, which is what the PAN is meant to be, can help taxmen establish a trail.

The government has now decided to impose a fresh deadline for those who have not fulfilled this requirement despite repeated reminders. If investors do not comply with identification norms, the Central Board of Direct Taxes (CBDT) plans to invoke the provisions of the Income-Tax Act to provisionally attach the securities in the frozen accounts.

At last count, frozen demat accounts were estimated to be over 20 lakh and the value of securities held by investors in such accounts at at least over Rs 1,00,000 crore, which is over 2% of the market capitalisation of companies listed on the BSE. India’s major depository, NSDL, alone has over 77 lakh active demat accounts with the custody value of securities in these accounts valued at over Rs 48,00,000 crore.

The finance ministry has already been provided with information relating to these frozen accounts by the two depositories — NSDL and CSDL. Officiails said the CBDT would write to investors whose demat accounts have been frozen warning them about the consequences of their failure to comply with the norms.

The securities in frozen accounts are mainly shares bought by investors either from the primary or secondary market. After the IPO price manipulation scam of 2006, Sebi made it mandatory for depository participants — and later investors — to quote PAN for operating demat accounts. Yet thousands of investors have ignored the deadline leading to freezing of their accounts. But that has not prevented some of them from receiving substantial credits in their accounts in the form of allotment of shares in Initial Public Offerings (IPOs).

The Income-Tax Act has provisions which enable tax officials to provisionally attach and appropriate the proceeds of tax assesses even when there is no demand which is sought to be raised. Over the last couple of years, tax compliance has been on the rise and officials say that the unique identification number has helped considerably on that front. The number of PAN cards issued now exceed 5.5 crore — far in excess of the number of taxpayers in the country. In fact on an average over 10 lakh PAN cards are being issued by the providers approved by the revenue department.

The finance minister P Chidambaram has mentioned in this year’s budget that the PAN is now the sole identification number for all participants in the securities market. Chidambaram had proposed in the budget that he would extend the requirement of PAN to all transactions in the financial market subject to certain threshold limits.

Monday 10 March, 2008

FMP Update

Here are some more launches of FMP that are available in the market at this point of time

Please read the following blogs to get details about what an FMP is and its advantages

1. Why invest in Fixed maturity plans ?

2. Fixed Maturity Plan - FAQ

The FMPs available in the market are:


UTI Fixed Term Income Fund-Series IV Plan IV

Tenure: 13 months
Offer open: 7 March 2008
Offer closes: 13 March 2008
Minimum Investment: Rs 5000
Cost Per Unit: Rs 10

SBI Debt Fund Series -13 Months Fund -7

Tenure: 13 months
Offer Open: 7 March 2008
Offer Closes: 17 March 2008
Plans: Retail and Institutional
Schemes: Growth and dividend
Minimum Investment: Rs 50,000 for retail plan and Rs 5, 00,000 for institutional plan
Cost Per Unit: Rs 10
Exit Load: 2% before maturity


JM Fixed Maturity Fund- Series IX-15 Months Plan ( JM FMF-IX-15M )

Tenure: 15 Months
Offer Opens: March 7, 2008
Offer Closes: March 12, 2008
Plan: Regular and Institutional
Scheme: Dividend and Growth
Minimum Investment: Rs 5000 per option for regular Plan and Rs 5, 00,000 per option for institutional plan
Cost Per Unit: Rs 10 Per Unit
Exit load: 2% before maturity

UTI Long Term Advantage Fund Series II

UTI has come out with a Mutual Fund called "UTI Long Term Advantage Fund Series II" which is a 10-year close-ended Equity Linked Savings Scheme with tax benefit. Upto Rs One lakh invested will give the investor a tax benefit under the Section 80C of the Income tax act. The Investment objective of the scheme is to provide medium to long term capital appreciation along with income tax benefit.

It will endevaour to invest in equities of well managed high quality companies that have the potential to grow at a reasonable rate in the long term. It will also invest in emerging growth companies that are believed by the Asset Management Company to have the potential to offer appreciation potential greater than the growth in the relevant stock market indices, in the long term. It will also aims to build and maintain a diversified portfolio

Asset Allocation
Equity: 80%–100% of the assets
Debt & Money Market Instruments: 0% – 20%

Scheme details
Issue Close Date March 19th
Type of Fund - 10 year close ended

Options - Growth Option and Dividend Option with Payout and Reinvestment
Minimum Amount - Minimum initial investment is Rs.500/- and in multiples of Rs.500/- thereafter with no upper limit. However, as per section 80 C of the Income Tax Act, 1961, the tax benefit will be available only upto a maximum amount of Rs.1,00,000/-
Redemption - Redemption Facility The Scheme will offer redemption / switch-out of units on any business day before the maturity but after the expiry of initial lock-in-period of three years period from the date of allotment at the relevant redemption price.

Entry Load: The scheme, being a close-ended scheme, is not permitted to charge Entry Load.
Exit Load : Nil. In accordance with SEBI (Mutual Funds) Regulation, NFO expenses not exceeding 6% of the amount mobilised, will be charged to the scheme and will be amortised over a period of 10 years. If the investor opts for the redemption before the completion of 10 years proportionate unamortized portion of the NFO expenses outstanding as on the date of the redemption shall be recovered from such investors.
Benchmark - BSE 100

Monday 3 March, 2008

Increase in income tax slabs

The present tax-free limit of Rs 1.10 lakh for non-senior men is being hiked substantially to Rs 1.50 lakh for the assessment year (AY) 2009-10 while for non-senior ladies this is being hiked from Rs 1.45 lakh to Rs 1.80 lakh.

Senior citizens will not have to worry about tax so long as their income does not overshoot Rs 2.25 lakh.

The first slab rate of 10 per cent applies on income between Rs 1,50,001 to Rs 3, 00,000; the second slab rate of 20 per cent applies on income between Rs 3, 00,001 to Rs 5, 00,000 and the maximum rate of 30 per cent on income exceeding Rs 5 lakh.


To put things in a clearer perspective let us take the case of a salaried male with an income of Rs 5 lakh. Ignoring education cess, the present present tax liability works out to Rs 99,000.

This will now come down to as low as Rs 55,000.

Thus across the board, there will be reduction in tax for every tax payer from the next assessment year. This is definitely good news and will add to the pockets which can be considered as some sort of increment that one will get.

DSP Merill Lynch Natural Resources and New energy Fund

DSP Merill Lynch has come out with a new open ended fund called "DSP Merill Lynch Natural Resources and New energy Fund". The primary investment objective of the Scheme is to seek to generate capital appreciation and provide long term growth opportunities by investing in equity and equity related securities of companies domiciled in India whose predominant economic activity is in the (a) discovery, development, production, or distribution of natural resources, viz., energy, mining etc; (b) alternative energy and energy technology sectors, with emphasis given to renewable energy, automotive and on-site power generation, energy storage and enabling energy technologies. The Scheme will also invest a certain portion of its corpus in the equity and equity related securities of companies domiciled overseas, which are principally engaged in the discovery, development, production or distribution of natural resources and alternative energy and/or the units/shares of Merrill Lynch International Investment Funds – New Energy Fund, Merrill Lynch International Investment Funds – World Energy Fund and similar other overseas mutual fund schemes. The secondary objective is to generate consistent returns by investing in debt and money market securities.

Asset Allocation:
1. Equity and Equity related Securities of companies domiciled in India, and principally engaged in the discovery, development, production or distribution of Natural Resources and Alternative Energy: 65% - 100%;

2. (a) Equity and Equity related Securities of companies domiciled overseas, and principally engaged in the discovery, development, production or distribution of Natural Resources and Alternative Energy (b) Units/Shares of (i) Merrill Lynch International Investment Funds – New Energy Fund (ii) Merrill Lynch International Investment Funds – World Energy Fund and (iii) Similar other overseas mutual fund schemes: 0% - 35%;

3. Debt and Money Market Securities: 0% - 20%

Scheme details
NFO Opens : March 3rd
NFO Closes : March 27th
Type of Fund : Open ended
Minimum Investment : Rs 5000 and subsequently additional purchase is Rs 1000
Options : Growth, Dividend and Dividend investment
Entry Load :
For investments less than Rs 5 Crore : 2.25%
For investments greater than Rs 5 crore : Nil
Exit Load
For holding period less than 6 months : 1%
For holding period between 6 and 12 months : 0.5%
For holding period greater than 12 months :NIL

Note : No entry load on direct applications, i.e. applications not routed through an agent/distributor.
No Entry Load / Exit Load will be charged on investments (including SIP transactions) by Fund of Funds Schemes