Skip to main content

Dividend Strippers in MFs



Some funds see AUM soar up to 5000% as savvy HNIs use opportunity to cut tax on capital gains
                                      
It has consistently lagged the large-cap equity fund category and the benchmark Nifty in the past five years. Its past one year performance is ranked 141 out of 143 large-cap equity funds.

Mutual fund tracker Value Research has put it in the doghouse with a two-star rating. Yet, the Reliance Quant Plus Fund scheme attracted inflows of an estimated . 1,800 crore during June.` The trigger: the ` . 4.20 dividend announced by the fund. On a net asset value (NAV) of ` . 14.69, the dividend yield worked out to 28%. Within days of the announcement, the fund's corpus grew 5000% from ` . 36 crore to about `. 1,850 crore as deeppocketed investors poured money into the scheme to escape tax through dividend stripping.

Though dividend from mutual funds is not really a gain, savvy HNI investors use such opportunities to reduce their tax on the capital gains from other investments.They put large amounts in funds that have announced big dividends just before the payout date. A few days later they pocket the tax-free dividend and then show the reduction in the NAV as a capital loss that can be adjusted against capital gains from other investments.

"\Dividend stripping is not an illegal practice but certainly a questionable one\. By paying out very high dividends in obscure, underperforming schemes, fund houses are facilitating the exploitation of a legal loophole to avoid tax. The DWS Investment Opportunity Fund from Deutsche Mutual Fund has been a listless per former, having underperformed the largeand mid-cap fund category and the BSE 200 index in the past five years. But the direct plan of the fund paid out ` . 7 dividend on June 25. On an NAV of ` . 29.46 per unit, this works out to almost 24%. After the announcement, the fund's AUM jumped 150% from ` . 120 crore at the end of May to over ` . 300 crore in June.

The JM Balanced fund is another example of how the tax avoidance opportunity from dividend stripping can drive the AUM. A long-time also-ran hybrid scheme, it witnessed inflows of almost ` . 3,000 crore after its quarterly payout option declared a dividend of ` . 4.75 per unit in June.The fund's regular dividend option paid ` . 5.20 in January (yield 18.7%) and `. 8.87 in March (yield 40%). Anybody who invested in the fund in January has got back 50% of the invested amount as dividend and will be able to adjust the notional loss against other gains.

Experts feel such tactics can prove counterproductive for the mutual fund industry . If fund houses indulge in practices that facilitate tax avoidance, the government may not offer the mutual fund industry any tax concession it is seeking. The taxman has placed a few hurdles in this much-travelled route to tax avoidance. The notional loss caused by the dividend payment can be claimed as a loss only if the units were bought three months before the record date or are held for at least nine months after the dividend payment. If the units are sold before nine months, the loss will be disallowed under Sec 94(7) of the Income Tax Act.

This means an investor cannot use dividend stripping as a short-term affair. The rule forces the investor to think long term. If he wants the tax adjustment benefit, he will have to remain invested for at least nine months.

Though this means the investor will have to carry the risk for the next nine months, it's a problem that can be fixed easily by creating a hedge. If one had invested ` . 12 lakh in the Reliance Quant Plus Fund in June, the value of his investment after the dividend of ` . 3.4 lakh would be around . 8.6 lakh. To guard this sum against a ` possible decline in the stock market till March 2016, he can sell two lots of the Nifty worth around ` . 8.5 lakh in the futures market.

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

Invest in Tax Saver Mutual Funds Online -

Invest Online

Download Application Forms

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

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

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

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

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Popular posts from this blog

Post Office Deposits Interest Rates

Best SIP Funds to Invest Online   SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich For further information on Top SIP Mutual Funds contact  Save Tax Get Rich on 94 8300 8300 OR You can write to us at Invest [at] SaveTaxGetRich [dot] Com

ELSS Tax Saver

ELSS Stands for Equity Linked Savings Scheme.   ELSS Fund are mutual funds with 3 years of lock in period and offer income tax benefit under section 80C. They are open ended to purchase. Not all Mutual fund Investments are eligible for tax exception. List of Tax Saving Mutual Funds   Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.   Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)   Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications   These Application Forms can be used for buying regular mutual funds also   Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds ) HDFC TaxSaver ICICI Prudential Tax Plan DSP BlackRock Tax Saver Fund Birla Sun Life Tax Relief '96 Reliance Tax Saver (ELSS) Fund IDF

How Tax Deducted at Source (TDS) works?

    THE tax season is here. And if you are an employee you can't blame your employer for deducting large chunks of money from your salary towards tax deducted at source ( TDS ), which he is legally obliged to do. Your bank will also deduct some percentage from your FD interest of Rs 10,000 or more towards TDS! So what is this TDS all about? How is it computed? Are there any changes this year? Read on... What is TDS? TDS reduces your taxable income and could even provide tax relief! The TDS collections account for 40 percent of the total taxes collected in the country. As the name suggests TDS is the amount of tax that is deducted at source in certain types of income . The TDS thus collected is deposited in the Government treasury within a specified time. How is it computed? Some of the types of income where TDS is applicable include salary, interest, rental fee, interest on securities, insurance commission, dividends from shares and UTI/Mutual Funds, commission and brokerage

Modern day balanced mutual fund approach

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India)   In reality, most balanced funds have a strong tilt towards equity instead of a mix of equity and debt THERE are various types of mutual funds available to investors with specific features. Often investors have a particular idea about a specific type of funds in terms of their features and risks, but that is not what is actually available. Therefore, it is necessary for an investor to understand the actual position before picking up a fund. This requires some work on the part of the investor. One example can be the situation with balanced funds. Name is not representative: One of the first things that an investor has to understand is that the name of the fund is often not representative of its investment pattern. The name often represents only the aim of the fund, and not what it actually is.

Should you invest in tax-free infra bonds?

THOSE looking to save tax should take note of the latest buzz in the debt markets. Power Finance Corporation ( PFC ) and Housing Urban Development Corporation (Hudco) have launched bonds that will help you save more tax than your regular infrastructure bonds. Soon, IRFC and NHAI are likely to follow suit with similar bonds. KP Jeewan, general manager, debt markets, Karvy Stock Broking, says: "The coupon in these bonds are completely tax-free and those in the highest tax bracket can expect an effective yield of 10.75 per cent, compared to the 9.5 per cent a 10-year public sector bond would offer." The PFC and Hudco offerings are of 10- and 15-year tenures, with coupon rates of 7.5 and 7.75 per cent, respectively. Unlike other regular tax-free infra bonds, the tax benefits in these bonds are not capped at ` 20,000. Even besides these tax free bonds, those in the highest tax bracket have had plenty of opportunities to invest in tax saving infrastructure bonds under 80 CCF i
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now