Retirement - Ensure regular earnings

Leave a missed Call on

94 8300 8300

Start early planning as the debt fund tax will hurt even monthly income plans

Imagine this: Your monthly income scheme invests 60 per cent in equities and 40 per cent in debt. Ideally, it should be treated as an equity scheme and returns should be tax- free after one year. Wrong. It will still be treated as a debt fund and be taxed at 20 per cent ( with indexation benefit) after completing three years. Worse still, if you are paid in the interim, either in form of dividend or monthly income, there will be a dividend distribution tax ( around 30 per cent) and income will be taxed in line with the income- tax slab.

While the recent Union Budget has introduced the new tenure, additional dividend distribution tax and additional income tax on your MIPs, previous Budgets have created the basic anomaly of defining an equity fund as one in which ' 65 or more money is invested in equities'. In other words, everything else qualifies as a debt, even foreign fund- of- funds which invest in equities. For ones, who have already invested in monthly income plans for regular income, there isn't any option. Investors in MIPs, unless the government changes the tax laws, will have to live with them. Anyway, they are giving higher returns than conventional fixed deposits. So, there is still a case for them." While there are strong indications that the government may not impose the new debt tax from April 1, investors might have to pay tax on instalments that are paid to them after the government specifies the date of tax imposition. Either they can choose withdraw the entire sum and put it in a fund that is heavily loaded in favour of equities. But the returns will be uncertain.

Or, they can invest in arbitrage funds which will give safe returns of eight to nine per cent but get the tax treatment of equity funds ( another anomaly). There are three basic things you need to answer. If you are looking for safe regular returns, go the fixed deposit or post- office savings scheme or senior savings schemes that give regular returns way; if you are willing to take some risk, MIPs are still a better option because though the returns may vary due to the equity component, they would be higher than fixed deposits and other safe instruments; don't bother too much about tax arbitrage.

If you are just a few years away from retirement and seeking regular income post retirement, invest in a hybrid or asset allocation fund ( growth option) which invests from five per cent to 30 per cent in equities. Invest in such schemes for three years. After which, set up a systematic withdrawal plan ( SWP) in the same plan to get money on a monthly basis. Choose hybrid funds also because when you are closing on retirement, just a few years or so, it does not make sense to be over aggressive on equities. While there will be a tax on the regular income, one can decide the sum that they want every month from the scheme and pay income- tax. Also, once you have retired, the income level is likely to go down. Another advantage of these funds is that there is restricted exposure to equity and the fund manager regularly keeps rebalances the portfolio to ensure safety

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

Leave a missed Call on 94 8300 8300

Leave your comment with mail ID and we will answer them

You can write back to us at

PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

---------------------------------------------

Best Performing Mutual Funds

Largecap Funds Invest Online

DSP BlackRock Top 100 Fund

ICICI Prudential Focused Blue Chip Fund

Franklin India Bluechip

ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

ICICI Prudential Dynamic Plan

HDFC Top 200 Fund

UTI Dividend Yield Fund

Birla Sun Life Front Line Equity Fund

Franklin India Prima

C. Mid and SmallCap Funds Invest Online

Reliance Equity Opportunities Fund

DSP BlackRock Small & Midcap Fund

Sundaram Select Midcap

IDFC Premier Equity Fund

Birla Sun Life Dividend Yield Plus

SBI Emerging Businesses Fund

HDFC Mid-Cap Opportunities Fund

ICICI Prudential Discovery Fund

D. Small and MicroCap Funds Invest Online

DSP BlackRock MicroCap Fund
Franklin India Smaller Companies

E. Sector Funds Invest Online

Reliance Banking Fund

Reliance Banking Fund

ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

DSP BlackRock Tax Saver Fund

Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

Relaince Gold Savings Fund

ICICI Prudential Regular Gold Savings Fund

HDFC Gold Fund

Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF

Birla SunLife Manufacturing Equity Fund

The Make in India program was launched by Prime Minister Naredra Modi in September 2014 as part of a wider set of nation-building initiatives. It was devised to transform India into a global design and manufacturing hub. The primary motive of the campaign is to encourage multinational as well domestic companies to manufacture their products in India. This would create more job opportunities, bring high-quality standards and attract capital along with technological investment to bring more foreign direct investment (FDI) in the country. Why India as the next manufacturing destination? The rising demand in India along with the multinational's desire to diversify their production to include low-cost plants in countries other than China, can help India's manufacturing sector to grow and create millions of jobs. In the words of our Honourable Prime Minister- Mr. Narendra Modi, India offers the 3 'Ds' for business to thrive— democracy,...

Total Returns Index brings out real Equity Funds Performers

From February, equity mutual funds have to change their benchmarks to account for dividend payments. Until now, funds used price-based benchmarks alone. TRI or total return indices assume that dividend payouts are reinvested back into the index. What this does is lift the overall index returns, because dividends get compounded. For example, the Sensex TRI index will consider dividend payouts of its constituent companies while the Nifty50 TRI index will consider dividends of its constituents. Using TRI indices as benchmarks comes on the argument that an equity funds earn dividends on the stocks in its portfolio, which they use to buy more stocks. Therefore, using an index that also considers dividend reinvestment would be a more appropriate benchmark. Shrinking outperformance With a stiffer benchmark, it is obvious that the margin by which an equity fund outperforms the benchmark would shrink. Rolling one-year returns from 2013 onwards, the average margin by which largecap funds out...

Stock Review: Havells

HAVELLS India's stock performance has been muted in the past three months, in line with the weak broader market. But, given the turnaround in its overseas subsidiary and the launch of new products in its consumer durable business, the company's stock may undergo a re-rating. Havells is India's leading consumer electrical goods company, with consolidated sales of . 5,527 crore in the past four quarters. Its wholly-owned subsidiary Sylvania, which makes lighting and fixtures, has established brands in European, Latin American and Asian markets. Sylvania repre sented nearly half of the company's consolidated revenues in the first half of FY11. Sylvania's poor financials hit Havells' consolidated performance in FY10. But, this has changed in the cur rent fiscal. Havells has reduced fixed costs of Sylvania by exiting from unprofitable businesses and outsourcing manufacturing to low-cost locations such as India and China. In the September 2010 quarter, Sylv...

Mutual Fund Review: Reliance Regular Savings Equity

Despite high churn, Reliance Regular Savings Equity has managed to fetch good returns In its short history, this one has made its mark. Though its annual and trailing returns are amazing, the fund started off on a lousy note (last two quarters of 2005). It managed to impress in 2006 and was turning out to be pretty average in 2007, till Omprakash Kuckian took over in November 2007 and wasted no time in changing the complexion of the portfolio. Exposure to Construction shot up to 28 per cent with almost 21 per cent cornered by Pratibha Industries and Madhucon Projects . Exposure to Engineering was yanked up (18.50%) while Financial Services lost its prime slot (dropped to 6.69%) and Auto was dumped. That quarter (December 2007), he delivered 54.66 per cent (category average: 25.70%). When the market collapsed in 2008, thankfully the fund did not plummet abysmally. But even its high cash allocations could not cushion the fall which hovered around the category average. ...

Kisan Vikas Patra - KVP

Kisan Vikas Patra (KVP) First launched in 1988, the Kisan Vikas Patra (KVP) is one of the premier and popular saving scheme offering from the Indian Postal Department. This product has had a very chequered history- initially successful, deemed a product that could be misused and thus terminated in 2011, followed by a triumphant return to prominence and popular consumption in 2014. The salient features of KVP are as follows- The grand USP- Money invested by the applicant doubles in 100 months (8 years, 4 months). KVPs are available in the following denominations- Rs.1000, Rs.5000, Rs.10,000 and Rs.50,000. The minimum purchase value for the KVP is Rs.1000. There is no maximum limit. KVPs are available at all departmental post offices across India. These certificates can be prematurely encashed after 2 ½ years from the point of issue. KVPs can be transferred from one individual to another and from one post office to another. ----------------------------------------------------- Inve...

Invest in Tax Saving Mutual Funds	Download Any Applications
Transact Mutual Funds Online	Invest Online
Buy Gold Mutual Funds	Invest Now

Invest in Tax Saving Mutual Funds	Download Any Applications
Transact Mutual Funds Online	Invest Online
Buy Gold Mutual Funds	Invest Now

Prajna Capital - An Investment Guide

Search This Blog