Prajna Capital

InfoTech Mutual Funds
Tata Dynamic Bond Fund - Invest Online
Dividend Stripping can reduce your tax

Posted: 03 Sep 2015 02:16 AM PDT

They have given good returns in the past but watch out for the concentration risk

Technology sector funds are currently on a roll: the category has given an average return of 14.31% to investors over the past year and 23.20% over the past three years.

"Business volumes have grown and companies have delivered good earnings growth, which has in turn got reflected in stock prices," ICICI Prudential Mutual Fund. Adds DSP BlackRock Investment Managers: IT services export companies have been gaining market share against their global peers. The rupee's depreciation against the US dollar has also worked in the sector's favour.

According to industry body Nasscom, the Indian IT industry is expected to grow at 12-14% in 201516. The opportunities for the sector lie in new digital technologies such as cloud, social media and mobile."A lot of work could come to Indian IT players once corporates have finalised their strategies and drawn up their action plans. Application development and maintenance work, the bread and butter for most Indian IT companies, will play its role, though the segment's growth has slowed.

Spoiler alert

The IT sector is in a transition phase. The new digital technologies will lead to disruption of exist ing revenue streams. The US visa issue for Indian professionals is also a worry. Other near-term risks include cross-currency movements and weak er outlook of IT spending by energy, telecom and retail sectors.

What should you do?

Investors should be cautious of the concentration risk in these funds.Those who have invested in diversified-equity funds will already have adequate exposure to the IT sector via these funds. You should either invest in tech funds after consulting a financial planner or have good knowledge of the workings of the IT sector. Experts reckon that your exposure to tech funds should not exceed 5-8% of your total equity portfolio. Invest in a fund that has given sound riskadjusted returns over the long term and beaten its benchmark across market cycles. It is also important that the fund's portfolio and management be stable. Some tech funds have a broader mandate to invest in media, telecom and Internet services while others are focused on the IT sector alone. Understand the mandate of the fund before you decide to invest.

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 -

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

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Leave a missed Call on 94 8300 8300

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Tata Dynamic Bond Fund - Invest Online

Posted: 03 Sep 2015 02:00 AM PDT

Invest in Mutual Funds Online

The scheme aims to provide reasonable returns and high level of liquidity by investing in debt instruments including bonds, debentures, Government securities and money market instruments so as to spread the risk across different kinds of issuers in the debt markets.

With bond prices turning out to be almost as unpredictable as stocks, making the right forecasts on interest rate direction has been quite a difficult task. But this fund has managed it well, earning its good returns mainly through rightly timed duration calls on its portfolio. This fund sticks mainly to AAA-rated bonds or G-secs in its portfolio and earns much of its returns by taking duration bets. Having said this, the fund seems to hold a slightly contrarian view on rates currently as compared its peers, expecting rates to go up before they moderate over the next one year.

This fund has managed not just high but also consistent returns in the last ten years. It has trailed its benchmark just one year out of the ten. However, given that returns do rely on duration calls, they have fluctuated quite a bit from year to year. One-, three- and five-year returns on the fund are higher than category and five-year returns of 9.1 per cent rank high in the category. The fund's average maturity has witnessed a fair bit of change the past year, going from five years or so in April 2014 to over 13 years by January. But in line with unfolding risks to rate cut outlook, the maturity has since moderated to about 9.55 years. That's not very low when compared to more accrual-oriented peers but reflects the fund's near-term view on rates. The average maturity on the portfolio of 7.9 per cent reflects its preference for top credit quality.

This is a good fund for investors looking to make the most of falling rates. But given its reliance on rate calls, the NAV can be vulnerable.

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

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

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

Download Mutual Any Fund Application Forms

Dividend Stripping can reduce your tax

Posted: 03 Sep 2015 12:05 AM PDT

Dividend Stripping

You can put money in schemes offering high yields, take dividends and then show decline in NAV as a loss.

There is nothing in the Reliance Quant Plus Fund to attract an investor. The fund has consistently lagged its 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. Value Research has put it in the doghouse with a two-star rating. Yet, the scheme attracted an estimated `1,800 crore during June. The trigger: the `4.20 dividend announced by the fund. On an NAV of `14.69, the dividend yield worked out to 28%. Within days, the fund's corpus grew 5000% from `36 crore to about `1,900 crore as deep-pocketed investors poured money into the scheme to escape tax through dividend stripping.

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

Dividend stripping is not illegal but certainly questionable. By paying out 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 underperformed the large and 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 25 June. On an NAV of `29.46 per unit, this works out to 24%. After the announcement, the fund's AUM jumped 150% from `120 crore in end 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 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%), another `8.87 in March (yield 40%) and `2.50 (yield 18.8%) in July. Anybody who invested in the fund in January got back over 60% of the investment as dividend and will be able to adjust the notional loss against other gains.

Sources say some investors are using the high dividends to transfer wealth abroad. There is a limit to how much wealth can be transfered abroad in a year. No such limit applies to dividends. So, super rich investors put money in the scheme, pocket the dividend and then move to another high dividend fund. "In 6-7 moves, a considerable amount can be turned into dividends," says an industry observer. If an investor put money in the JM Balanced fund in January and shifted to the Reliance Quant Plus Fund in April, he would have got 70% of his investment as dividends. Since the investor does not want to claim the loss, there is no compulsion to hold the fund for a minimum period.

Experts feel such tactics can prove counterproductive for the industry. If fund houses indulge in practices that facilitate tax avoidance, the government may not offer the MF industry tax concessions it seeks.

The taxman has also placed a few hurdles. The notional loss caused by the dividend payment can be claimed as loss only if the units were bought three months before the record date or are held for at least nine months after dividend payment. If the units are sold before 9 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 shortterm affair.If the investor wants tax adjustment benefit, he will have to remain invested for nine months.

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