To ensure that all schemes launched by mutual funds are distinct in terms of asset allocation and investment strategy, SEBI proposed categorisation and rationalisation of mutual fund schemes.
Nikhil Walavalkar | Mar 16, 2018 02:24 PM IST | Source: Moneycontrol.com
Mutual funds are busy changing the names of their schemes. Securities Exchange Board of India’s (Sebi) directive on the rationalisation and categorisation of mutual fund schemes has made mutual funds to drop the fancy names and fall in line. The idea is to simplify the process of understanding the mutual fund offerings and choosing schemes for investments by investors. But as the names change, there are some investors who may start worrying about their investments. If the investment you have invested into has disappeared or renamed do not get worked up. Do read on to understand how it impacts you.
To ensure that all schemes launched by mutual funds are distinct in terms of asset allocation and investment strategy, SEBI proposed categorisation and rationalisation of mutual fund schemes. The SEBI prescription allows fund houses to offer schemes in 10 types of equity funds, 16 categories of bond funds and 6 categories of hybrid funds. Fund houses are also allowed to launch index funds, fund of funds and solution oriented schemes.
“SEBI has clearly defined norms and the asset allocation and the norms that will specify each category,” says Rupesh Bhansali, head of mutual funds, GEPL Capital. For example, a large cap fund must invest at least 80% of the money in large cap stocks. Large cap stocks are defined as top 100 companies in terms of full market capitalisation. “By introducing these norms the regulator has ensured that the apple to apple comparison of mutual fund schemes is possible,” says Bhansali.
The mutual fund houses too have started responding with change in names and investment strategy of the schemes, wherever applicable. For example, DSP Blackrock Focus 25 Fund is renamed as DSP Blackrock Focus Fund. Analysts used to treat it as a large cap fund so far. However, going ahead it will be placed in Focused Fund category.
The process of aligning with the SEBI norms will go on for a while and more fund houses will make necessary changes. The process however should not stop you from investing in mutual funds.
“Investors should first understand the category of mutual funds as each one of these has distinct characteristics,” says Swarup Mohanty, CEO of Mirae Asset Mutual Fund. Find out where your scheme is going to be placed and see what kind of investment strategy it will employ.
“If the scheme’s investment strategy and portfolio construction changes, then there is a very high possibility of changes in risks and returns associated with investing in that scheme,” Renu Pothen, head of research, FundSuperMart.com. For example, if a fund that was a primarily large cap scheme is shifted to a large and mid-cap scheme, then the risk associated with the scheme goes up as the fund manager invests minimum 35% of the money in mid cap companies. Possible higher returns come on the back of higher risks.
“The investor must assess the risk-reward in the light of his financial goals and his risk appetite before investing in that scheme. If there is a mismatch between the investor’s risk profile and the risk-reward offered by the scheme, the investor will be better off selling out his existing investments. He can look for better options elsewhere,” says Renu Pothen. While exiting a mutual fund scheme, there are implications such as exit loads and capital gains, which investors should not ignore.
“When there is a change in fundamental attribute of the scheme, the investors are given exit option without any exit load,” points out Bhansali. This exit option is not at all compulsory and should be availed if and only if there is a mismatch between your expectations and the offering. However, the capital gains will be payable in case of redemption in bond funds. Though the exits in current financial year from equity funds will lead to no tax on long term capital gains, the same will attract 10% tax after April 1, in case the gains exceed Rs 1 lakh.
Changes in regulatory framework and volatile markets may add to worries of mutual fund investors. However, mutual fund investors must take this opportunity to relook at their investment plans, say experts. If you do not understand the fine nuances of equity funds, better stick to multicap funds and let the fund manager decide what asset allocation should be within equity as an asset class.
“It is time to reassess your risk profile. Do not get carried away with high returns over last couple of years. Instead be realistic with your return expectation while building your financial plans and use short term volatility to your advantage by investing through systematic investment plan,” advises Mohanty.
By Madhu T | ECONOMICTIMES.COM | Updated: Dec 26, 2016, 02.34 PM IST
The prime minister has spoken and the finance minister has clarified. It seems, long-term capital gains on your equity mutual funds are not likely to be taxed in the budget. Still, there are so many theories floating around: short-term capital gains tax may be hiked; holding period to qualify for long-term capital gains tax may be raised, and so on. Now, the big question: should equity mutual fund investors be worried?
The answer is a big no. Sure, taxes would take away a part of your returns. However, taxes are never the sole reason for making an investment, including equity mutual funds. If there is a change in taxation of your gains from your equity mutual funds, you will have to alter your investment plan to ensure that you meet your various financial goals without any difficulty.
Let us see why equity mutual fund investors should not unduly worry about a likely (or real) change in taxation. First, consider what will happen if the short-term capital gains tax rate is increased? Or the holding period is increased?
Well, it would hardly have an impact on your investments. Surprised? It seems, you have forgotten that you don’t invest in equity mutual funds for a short period.
Short-term capital gains tax of 15 per cent comes into the picture when an investor sells his equity mutual funds before a year. Since individual investors are expected to invest with an investment horizon of at least five years in equity mutual fund schemes, this change will not have any impact on them. Sure, they will take hit if they are forced to sell their investments due to an unforeseen event.
Now, what about the likely reintroduction of long-term capital gains tax? Or likely increase in holding period to qualify for long-term capital gains tax?
If equity mutual funds are sold after a year, the gains are treated as long-term capital gain. At the moment, the long-term capital gains on equity mutual funds are not taxed in India. As said before, if the holding period is raised to two or three years, it will not have an impact on your investment life, as you anyway invest in equity with a minimum holding period of five years.
What if long-term capital gains are taxed? Sure, that would hurt. You will have to part with a large chunk of your returns at the time of selling your investments. This would call for you to revisit your calculations done at the time of fixing various financial goals. Since the tax is likely to take away a part of your corpus, you will have to increase your investments to make up for it.
For example, if you have to part with 10 per cent of your gains as tax at the time of withdrawal, you will have to invest more to create the target you had in mind. Or pray you earn more than your return projections. Kidding, it is always better to err on the side of caution. So, check whether you can make extra allocations.
Similarly, if the holding period is changed, you will have to take that into account while deciding on the investment to meet your financial goal.
Now, should you fret about long-term capital gain taxes and pull out money from equity mutual funds? Well, that is not even an option for you. Remember, you have decided to put money in equity to build a corpus for your various long-term goals because equity has the potential to offer superior returns than other investments over a long period. That hasn’t changed even now. That means you will have to bet on it irrespective of the taxation.
Remember, long-term capital gains on equities were taxed earlier. It was abolished in 2004 and Securities Transaction Tax (STT) was introduced by the government because STT was easier to enforce and boost tax collections.
HT Estates Correspondent | Updated: Nov 12, 2016 14:03 IST | Hindustan Times
Developer bodies and homebuyers have welcomed the government’s decision to ban Rs 500 and Rs 1000 notes, with the former hoping that interest rates will further come down and make it affordable for homebuyers to purchase a house.
Parveen Jai, president, Naredco has said that it is a “positive move and will help keep a check on the illegal black money movement. As for affordable and mid-housing segment, these will not be affected since these transactions are primarily routed through bank borrowings.”
The organised part of real estate sector will not be impacted. “It is only the unorganised fly-by-night players who will be affected. This move will help the sector fight more effectively for removal of section 43CA of the IT act as now there is no reason to charge tax on so-called deemed income on both buyers and sellers post this move,” says Getamber Anand, president, Credai.
The body also expects that in the coming months repo rates will go down by at least 2% and that home loan rates will come down to at least 7%.
“We expect that the RBI would definitely in the coming months, reduce repo rates by at least 2% so that a home loan can be brought down to at least 7%. The home loan rates coming down to such levels of sub 7% in the next year or so, the atmosphere will become more like the west where home loans are available at 5% and below. Unlike western countries, India has a documented shortage of housing and homes, an aggressive domestic demand for real estate. This essentially means that in presence of a lower home loan interest regime, a larger pool of home buyers will be able to avail loans to buy the home they always wanted. This could be made possible in as soon as the next six to twelve months. Housing industry will start to grow at a rapid pace while concurrently being in compliance with transparency and fair practices like RERA,” says Anand.
Homebuyers too have welcomed the move. “It will help weed out ‘the ratio’ between black and white component which is used to make payment for properties. The impact on real estate prices is obvious. The move will make prices more affordable and do away with unrealistic pricing that dominates the market today,” says Abhay Upadhyay, national convenor, Fight For RERA.
Property valuers, however, are of the opinion that the move will lead to prices going up in the long term. “With time, it will not be surprising to see prices go up as sellers come to terms with the fact that capital gains tax has to be paid on monies. Sellers are likely to factor that liability into the sale price,” says Sachin Sandhir, global managing director – emerging business, RICS.
The land purchase process earlier had the owner entering into an agreement with a builder where part of the payment was unaccounted. Now, since the owner can no longer do that – he would either sit out on the land, stalling the entire development project, or charge a premium to maintain the same cash margins after tax. This may increase the input cost for developers impacting realty prices.
Rakesh Nangia, Managing Partner, Nangia & Co | Updated: Apr 08 2014, 10:55 IST | Financial Express
While each one of us wants to invest in real estate, one needs to be conscious of the tax implications. Tax on capital gains from selling a house depends on the period of holding. If a property is sold before three years of acquisition, the gains will qualify as short-term capital gains taxable like any other income of the assessee.
However, if the property is sold after three years of acquisition, the capital gains, known as long-term gains, are taxable at 20%. In addition to that, the assessee can also avail the benefit of an inflated cost of acquisition.
Additionally, the Income Tax Act provides for exemption from taxation of capital gains if the assessee invests them in a residential house within two years from the sale or constructs another house within three years from sale. However, if the newly acquired house is sold within three years from acquisition, the exemption claimed earlier becomes taxable.
The date of acquisition is of immense importance to determine the nature of the capital asset as well as to claim the exemption. However, in case of self-financed builder flats, the concept of date of acquisition has been quite litigative. Various questions arise in the minds of the intended buyer.
First, does an assessee acquire an asset by booking a flat? Capital asset has been defined to mean property of any kind. Hence, a right to obtain conveyance of an immovable property can be construed as a “property”. Accordingly, if the booking agreement and allotment terms of the builder give a right to obtain conveyance on the flat, that itself will be “an asset” under the Income Tax Act.
Second, whether the gain on transfer of such rights in the flat or on transfer of the flats after talking possession thereof is short term or long term? The deciding factor is the date of acquisition. Indian tax authorities are giving priority to the facts of the case. It has been held in various rulings that the crucial date is the date of allotment of the residential flat and the payment of instalment is merely a follow-up action. Hence, the date of issue of an allotment letter can be construed as the date on which the assessee has obtained the conveyance on the flat.
Lastly, in respect of the exemption claimed under Section 54/54F, where the builder delays the construction of the flats beyond three years, whether the assessee shall be liable to pay the tax thereon? Strictly applying the provision, one is compelled to think that the exemption shall stand withdrawn in case of any delay beyond three years.
However, relying on the ruling of higher judicial authorities, one can heave a sigh of relief, since it has been repeatedly held that where it is found that most of the sales consideration has been spent for construction of house, but some portions are not complete for various reasons, the assessee is not liable for delay on part of the builder.
The courts are taking a liberal view in respect of Section 54/54F, and are holding that merely because the builder delayed the possession of the flat, the assessee cannot be held liable to tax. Even the CBDT has clarified that an investment in a self-financed flat will qualify as construction under Section 54F and the date of allotment of flat by an institution will be the date and payment is only a follow-up action and taking possession of the flat is only a formality.
Source : http://goo.gl/o3LVQb