Prajna Capital |
- Tax-free bonds are shooting up
- Things to know about debt funds
- IDFC Equity Opportunity Series 2 dividend
| Tax-free bonds are shooting up Posted: 21 Nov 2014 04:03 AM PST Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Leave a missed Call on 94 8300 8300 Tax-free bonds are shooting up Some of these bonds issued by PSUs have risen 22-24% in the past 10 months. While long-term debt funds have given good returns, the tax-free bonds issued by PSUs have done even better. Some of these bonds have risen by 22-24% in the past 10 months. Despite the spurt in prices, experts believe these bonds still have a lot of steam left. They expect these bonds to generate better returns in the coming months. Investors who hold these tax-free bonds should not sell now. Others can consider buying them now because despite the rise in prices the post-tax yield is better than that offered by other debt instruments such as fixed deposits and NSCs. On a pre-tax basis, long duration tax free bonds are still offering better yields compared to other options available. For example, the yields to maturity (YTM) for most tax free bonds are close to 7.3% now and this works out to be a pre-tax return of 10.56% for anyone in the 30% tax bracket. Can tax-free bonds generate better returns than other bonds? Yes, because the new government has choked the supply and disallowed any more such issues. These tax-free bonds are in high demand from HNIs, especially after the change in the tax rules for debt funds. These bonds enjoy a tax advantage over debt funds. Debt funds must be held for at least three years if the investor wants his gains to be classified as long-term capital gains. But the tax-free bonds are eligible for long term capital gains after one year. Besides, the interest from these bonds is tax free. On the other hand, the gain from the mutual fund is taxed as capital gains. To reduce the capital gain impact here, you can sell the bond after receiving the tax free interest. However, one disadvantage is that these tax-free bonds are not eligible for indexation benefit. The first thing to look for in a tax-free bond is its yield to maturity (YTM). Also look at the credit rating. Though these bonds are from PSUs and the risk of default is very low, you should demand higher yield if you buy anything rated below AAA. Also look at the issue size. Go for bonds with a larger issue size because they are more liquid.
Medium or long-duration bonds To gain from the bond rally, move out of short-term debt funds to long-duration funds. The returns from short duration funds will fall if there is a rate cut. These funds will be forced to invest in new investments and maturity amounts of old investments at lower rates. Long-term debt funds, on the other hand, will generate fabulous returns in a falling interest rate scenario. With the current coupon rates of long-duration papers with over 10-year maturity at 8.5-9%, these funds should be able to generate similar returns even if the rate structure remains stagnant for the next one year. Capital gains due to the fall in interest rates will also add around 5 percentage points to the returns if we assume a 50 bps cut. However, long-duration funds are also more volatile. If your risk appetite is low, you can consider medium-duration (average maturity of 5-10 years). Gilt or corporate bonds Government securities are more sensitive to interest rates and, therefore, will be the first to move up when there is a rally after a rate cut. They are also free from de fault risk. Corporate bonds, on the other hand, generate better yields. However, experts say income funds are better because the fund managers can include both gilt and corporate bonds in the portfolio. Income fund managers can play the credit spread. Credit spread refers to the yield gap between gilt papers and AAA rated corporate bonds. Dynamic bond funds Selecting the right duration and exiting at the right time, however, may not be easy for all retail investors. If you think you may not be in a position to take a call on interest rates, go with dynamic bond funds. Here, fund managers will be taking the call on your behalf. "Dynamic bond funds are a better option because static portfolios won't work in a volatile interest rate regime. Actively managed debt funds should do better than fixed duration funds in a 3-5 year time period. In recent months, fund managers of dynamic bond funds have increased the average maturity of their portfolios. From two years earlier, the average maturity is now around six years. Selecting funds To select good schemes, always stick with large-sized funds. The market lot size in the wholesale debt market is very high (around `5 crore) and a smaller fund may not be able to fully capitalise the emerging opportunities in the market. Also, smaller funds may face a tough time if there is sudden redemption pressure. The fund manager will have to resort to distress selling, which will hurt the fund's NAV. Also, make sure that the portfolio is not into lower rated bonds. Some fund managers try to improve their returns by including low-rated corporate bonds that offer higher yields. Stay away from such funds. 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 OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest Mutual Funds Online
Download Mutual Fund Application Forms from all AMCs Download Mutual Any Fund Application Forms ---------------------------------------------
Best Performing Mutual Funds
B. Large and Midcap Funds Invest Online
C. Mid and SmallCap Funds Invest Online
D. Small and MicroCap Funds Invest Online
E. Sector Funds Invest Online
F. Tax Saver Mutual Funds Invest Online 1. ICICI Prudential Tax Plan 2. HDFC Taxsaver
G. Gold Mutual Funds Invest Online
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 | ||||||||
| Things to know about debt funds Posted: 21 Nov 2014 03:35 AM PST Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Leave a missed Call on 94 8300 8300 Things to know about debt funds Debt funds offer several advantages but small investors know little about them. Here's how you can benefit from them.
TAX RULES HAVE CHANGED
In this year's Budget, the tax rules for debt funds were changed. The minimum tenure for long-term capital gains was extended from one to three years. This means that investors will have to remain invested for at least three years if they want the benefit of lower tax on long-term capital gains. If redeemed within three years, the gains will be added to the person's income and taxed as per the applicable income tax slab. However, if the investor can hold for more than three years, a debt fund will be far more tax-efficient than a fixed deposit. In a fixed deposit, the entire interest earned is taxed at the rate applicable to the investor. The long-term capital gains from debt funds are taxed at 20% after indexation. Indexation takes into account inflation during the period that the investment is held by investor and accordingly adjusts the buying price. This can lower the capital gains tax significantly.
KEEP IN MIND THE EXIT LOAD A debt fund is very liquid since you can withdraw your investments at any time and the money is in your bank account within a day. However, some funds levy a penalty for exiting before the minimum period. The exit load can vary from 0.5% to 2%, while the minimum period can range from six months to up to two years. Check the exit load of the fund before you invest. Even a 1% exit load can shave off a significant portion from your gains. NO TAX DEDUCTION AT SOURCE Another tax-friendly feature of debt funds is that there is no tax deduction at source (TDS) on the gains. In fixed deposits, if your interest income exceeds `10,000 a year, the bank will deduct 10.3% from this income. If you are not liable to pay tax, you will have to submit either Form 15H or 15G to escape TDS. The other problem is that the income from fixed deposits is taxed on an annual basis. You will get the money once the deposit matures, but the income is taxed every year. In debt funds, the tax is deferred indefinitely till the investor redeems his units. What's more, the gains from a debt fund can be set off against short-term and long-term capital losses you may have suffered in other investments. RETURNS ARE MARKET-LINKED Though they are looking very promising, debt funds do not offer assured returns. In fact, they can also churn out losses in case the interest rates go up, although the possibility of this happening is remote. The maturity profile of the holdings defines the volatility of a debt fund. Funds holding short-term bonds are not very volatile and give returns roughly equivalent to the prevailing interest rate. But the funds that invest in long-term bonds are more sensitive to changes in interest rates. If rates decline, the value of bonds in their portfolio shoots up, leading to capital gains for the investor. While the average short-term debt fund has given 9.8% returns in the past year, some long-term bond funds have shot up by 1415% during the same period. INVEST IN SIPs VIA DEBT FUND Financial planners say one should not invest a large sum in stocks at one go. Instead, SIPs are the best way to buy equity funds. If you have a large sum to invest, put it in a debt fund and start a systematic transfer plan to the equity fund of your choice. Every month, a fixed sum will flow out from the debt fund into the equity scheme. Compared to the 4% your money would have earned in the savings bank account, it has the potential to earn 9-10% in the debt fund. Similarly, if you want regular retirement income from your investments, invest in a debt fund and start a systematic withdrawal plan. Every month a fixed sum will be redeemed from your investment. 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 OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest Mutual Funds Online
Download Mutual Fund Application Forms from all AMCs Download Mutual Any Fund Application Forms ---------------------------------------------
Best Performing Mutual Funds
B. Large and Midcap Funds Invest Online
C. Mid and SmallCap Funds Invest Online
D. Small and MicroCap Funds Invest Online
E. Sector Funds Invest Online
F. Tax Saver Mutual Funds Invest Online 1. ICICI Prudential Tax Plan 2. HDFC Taxsaver
G. Gold Mutual Funds Invest Online
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 | ||||||||
| IDFC Equity Opportunity Series 2 dividend Posted: 21 Nov 2014 02:06 AM PST Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Leave a missed Call on 94 8300 8300 IDFC Equity Opportunity Series 2 declares dividend
IDFC Mutual Fund has announced dividend under the dividend option of IDFC Equity Opportunity Series 2 Regular and IDFC Equity Opportunity Series 2 Direct.
The quantum of dividend shall be R1.5 per unit. The record date has been fixed as November 05, 2014 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 OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest Mutual Funds Online
Download Mutual Fund Application Forms from all AMCs Download Mutual Any Fund Application Forms ---------------------------------------------
Best Performing Mutual Funds
B. Large and Midcap Funds Invest Online
C. Mid and SmallCap Funds Invest Online
D. Small and MicroCap Funds Invest Online
E. Sector Funds Invest Online
F. Tax Saver Mutual Funds Invest Online 1. ICICI Prudential Tax Plan 2. HDFC Taxsaver
G. Gold Mutual Funds Invest Online
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 |
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