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- Mutual Fund Growth option is more tax efficient
- ICICI Prudential Multiple Yield Plan E - Dividend Declaration
- Card Cash Back offers Vs Card Reward points
| Mutual Fund Growth option is more tax efficient Posted: 21 May 2013 04:17 AM PDT Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
We received an incredulous call from one of our financial planning clients. He claimed he had lost capital value when he had invested some large surpluses in a liquid fund. He claimed when he withdrew the entire investment last month, he got back less than the amount invested in January.
Liquid funds are safe, hence, there was no question of any loss being incurred. We asked him for details.
We learnt the client had invested ₹ 3 lakh on January 10, 2013. Net asset value ( NAV) = ₹ 2,179.23; allotment = 137.66 units. On March 25, he received a dividend of ₹ 65,603, which was reinvested as he had chosen a dividend reinvestment option. The NAV at this point of time was ₹ 1,592.4214 and, therefore, an additional 41.197 units were credited to his account. Thus, the total number of units stood at 178.86.
The invested amount reduced on March 26 to ₹ 284,820, that is, NAV (as on date) multiplied by the number of units ( 1,592.4214* 178.86). Had he invested in the same fund but opted for growth option, he would have earned a return of over eight per cent a year.
Clearly, the issue was the whopping dividend paid. It brought down the NAV by more than the dividend amount. The dividend is tax- free in the hands of the unit holder, but the fund has to pay it, called Dividend Distribution Tax ( DDT). DDT paid by the fund is debited back to the unit holder by reducing the NAV.
Now, if the dividend was restricted to the amount of gain made on the unit, our client would not have been any worse off, as the tax paid by the fund would have been less than or equal to the amount he would have to pay anyway. However, in this case, DDT had also been paid on the capital returned and that is what was causing a loss to him.
Suppose you lend ₹ 100 to somebody at 12 per cent annually. At the end of 10 months, the principal- plus interest works out to ₹ 110. At this stage, you want your money back.
The interest portion is paid back as dividend. The borrower pays tax for that and returns the principal amount after deducting the tax. If the fund pays tax on your behalf at the same rate as you would have paid, then it is a no loss- no gain deal. It would have worked better if you had asked for the ₹ 110 and paid tax on the ₹ 10 yourself.
Suppose the borrower offers to pay a dividend of ₹ 60 and returns after deducting the tax paid on the dividend.
Clearly, it's not a good deal for you because here the tax paid on the entire ₹ 60 is being deducted from the amount due to you.
Paying ₹ 60 as dividend when the interest portion is only ₹ 10 is absurd. Let me just say this is what happens when you invest in a liquid fund when it has accumulated gains in the past, which have not been declared as dividend.
When they do declare the dividend, the unit holders who have joined later may end up getting a dividend that will reduce the NAV below their cost price.
Very limited options under which the dividend option would work out better for an individual in any liquid fund. In fact, when the withdrawal happens after one year, the growth option confers a significant tax benefit. Even for equity funds, the dividend option does not make sense and can cause tax losses due to units being redeemed within one year of dividend declaration. So, for an individual investor, it makes sense to go for the growth option when investing in a mutual fund Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- 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 )
------------------ Best Performing Mutual Funds
|
| ICICI Prudential Multiple Yield Plan E - Dividend Declaration Posted: 20 May 2013 08:52 PM PDT Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
ICICI Prudential Mutual Fund has announced dividend under the dividend option of ICICI Prudential Multiple Yield Plan E. The quantum of dividend shall be Rs 0.5712 per unit.
The record date has been fixed as May 15, 2013
Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- 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 )
------------------ Best Performing Mutual Funds
|
| Card Cash Back offers Vs Card Reward points Posted: 20 May 2013 07:33 PM PDT Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
"One for everyone. Pick the card that suits you the best! It's good to have a credit card that's like you!" reads a promotional mailer from Standard Chartered Bank. It further reads, " 5 per cent cash back on all fuel spends, all phone bills, all utility bills on Titanium Card." Platinum card offers five times rewards on dining, hotels and fuel and so on. If you see such an offer, will you apply for the cards? Likely; who does not like discounts and freebies? This is why many own multiple credit cards, with multiple benefits. Some go to the extent of saying these benefits help counter the high prices to some extent.
If you pay, for instance, an electricity bill of ₹ 1,000 using a cash- back card, the card will offer you five per cent of your bill amount, that is ₹ 50. You pay only ₹ 950 on your card.
Reward offers on credit cards work differently. You get cash benefits in the form of coupons or vouchers for a certain number of points collected on purchase through the credit card.
For instance, for every purchase through Standard Chartered's Platinum Rewards Card, you collect 3,000 points, which earn you Big Bazaar coupons worth ₹ 1,000.
Which of these works better for a cardholder? Collecting and redeeming reward points for lifestyle or other expenses works out better for card holders.
Once a customer has collected enough points, s/ he can use those for specified expenses at their will." says a senior official of HDFC Bank. It might not always be different cards that offer cash back and rewards benefits.
Sometimes, the same card offers both these.
According to an SBI official, banks discourage customers from cash back cards, as banks as banks have to pay in cash to the customer. With rewards points, banks have nothing to lose. Also, those who really take advantage of such offers are high spenders, making it an expensive proposition for banks.
Let's see which option works out better for cardholders. We take the example of Standard Chartered's Super Value Titanium ( cash back card) and Platinum Rewards card. You spend, say, ₹ 60,000 a year on fuel for your car. With the cash back card, you will get a five per cent cash back, according to the Standard Chartered banks mailer.
However, the actual cash back works out to be 2.5 per cent. Reason: The five per cent cashback offered by Standard Chartered's Super Value Titanium is in fact 2.50 per cent cashback and 2.50 per cent fuel waiver surcharge. This means by spending ₹ 60,000, you will get back ₹ 1,500 in a year. The fuel surcharge is offered by the rewards card as well.
In contrast, the rewards card will give you 3,000 points, which means ₹ 1,000 worth of Big Bazaar coupons for spending. This means the cash back card offers a better deal. However, the reward card does not levy any joining or annual charges on the cardholder. However, the cash back card levies an annual fee of ₹ 750, which brings down the saving on the card to ₹ 750. This makes the total earning on reward cards higher by ₹ 250.
For small spenders, both these cards offer almost the same deal. However, for big spenders, the cash back card is a better deal between the two. If the annual fuel spend is doubled to ₹ 1.20 lakh, then the cash back would be ₹ 3,000 and rewards would be worth ₹ 2,000. Even if you take into account the annual fee levied by the cash back card, you would get a total cash back of ₹ 2,250, higher than the offer on rewards card.
Rewards tend to be more when you are opting for lifestyle and related expenses, less when you are looking at regular needs, like Big Bazaar coupons. Also, money is spent first and rewards come later. In the case of cash back cards, you get direct discounts on items you have to buy regularly like fuel or electricity. A 2.50 per cent discount saves on immediate cash outflow. Cash discount frees up cash. Reward points are connected to spending programmes, usually lifestyle- related, which you may not need immediately.
A cash back card helps you in two ways. One, it brings home the direct benefit of discounts.
Two, it saves you the pain of choosing an item to buy from the reward catalogues, which might not be really worth the price shown. Of course, the benefits of both cash back and rewards are available at select merchant outlets with which the card manufacturer has a tie up.
Hence, you might not have too many options to shop. Many times, discounts/ rewards for fuel purchase are available only when you swipe your card on the card issuer's machine.
Finally, credit cards should be used judiciously. Keep a record of your estimated monthly expenses that may get cash back.
Calculate how much you save if you go with the card. Remember to check on joining if there are any annual fees. Go for it only if you save a decent amount after paying for fees. Do not spend just because there is a cash back offer as you have to pay the outstanding amount lest you'll land in a debt trap.
It makes sense to go for a cash back card only if you are a big spender, otherwise the benefits are almost equal
Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- 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 )
------------------ Best Performing Mutual Funds
|
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