Prajna Capital - An Investment Guide

From a tax point of view, taking a dividend reinvestment option is no different from receiving the dividend in you bank account and then making a fresh investment of the same amount. The dividend received will be taxed like any other dividend ( Dividend Distribution Tax or DDT ) and resulting purchase of fresh units will be treated like any other fresh capital investment. Any capital gains that you realise when you sell will be treated as long-term or short-term depending on the period of investment. Therefore, what you refer to as principal amount is not a single principal amount but a separate principal amount for each individual dividend reinvestment. Each one of these individual investments will therefore become long-term on a separate date 365 days after it was invested. This is a basic principle that is applicable to all types of funds. In the liquid fund case, there will definitely be a tax liability on the capital appreciation on the principal amount at the time of redemption...

What does the retail investor do in choppy markets being seen now? YES, the current markets are in a bearish phase on account of several global and domestic factors. High crude prices are, however, the single biggest factor for the meltdown. It is hard to predict when the markets will stabilise. Investors who invested in equity markets at the peak time are anxious to know how they can protect their investments. Also, there are several investors who are interested in entering the markets and are keen to understand what should be their strategy. Firstly, let us understand that the current behaviour of the stock markets is not unprecedented. If you go back in history, both domestically and globally, the stock markets have moved in various directions over a short period of time. So do not panic. Let us assume that there are two investors: investor A and investor B. Investor A invested in equity mutual funds at the peak of the markets in January 2008 and has now witnessed erosion of ...