I am planning to invest my emergency money in Birla Sun Life Short Term Retail (growth). Is this a right decision? If not, then please tell me where I should invest my emergency money.
- Apurba Pan
Your decision would depend on the speed of access you are seeking for this emergency money. If you need instant access to it then you should go for a recurring deposit so that you can withdraw your money immediately in case of an emergency. The principal is also protected in this case.
If you do not need instant access and you can take a little extra risk, then you can go for liquid funds which give slightly higher returns than recurring deposits. Redemption in a liquid fund takes T+1 day that is, 24 hours. If there are any holidays or non-trading days, then the redemption will be delayed by that many days. Therefore, your selection will depend on the urgency of access you are looking for.
In case you opt for a liquid fund, your choice of Birla Sun Life Short Term Retail is good. Other liquid funds with a good track record include Canara Robeco Liquid, Escorts Liquid and HDFC Cash Mgmt Savings.
I would like to invest in funds that focus in international markets. Could you please suggest a few good ones?
- Arun Ramachandran
Currently, there are many funds available that invest in the overseas markets. Some invest their corpus in other mutual funds abroad and are known as feeder funds, others invest directly in foreign securities. Each fund has different exposures as per their objectives.
Most of the funds that invest abroad are new and do not have a performance history that can be commented upon. The selection of your funds would also rest on which part of the world you would like to invest. Some funds like ICICI Prudential Indo Asia Equity, Franklin Asian Equity invest primarily in the Asia-Pacific region. ING has a fund that invests in Latin America. Then, there are feeder funds like DWS Global Thematic Offshore Fund invests its corpus predominantly in Singapore based DWS Strategic Global Themes Fund.
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I want to know about the capital gains tax on debt funds. What is long-term capital gain and short-term capital gain? Do all debt funds have the same implications?
- Manoj Mangla
If a mutual fund is held for less than one year, it classifies as a short-term capital asset and if it is held for more than one year, it becomes a long-term capital asset. The gains arising from the sale in the short and long-term are taxed under short-term and long-term capital gains guidelines.
All debt funds are taxed similarly where capital gain is concerned. Only in case of dividend distribution tax, liquid schemes have a different tax rate than all other debt funds. The short-term capital gain on debt funds is added to the taxable income and is taxed as per the applicable tax slab. Long-term capital gain is taxed at 11.33 per cent without indexation or 22.66 per cent with indexation.
I am planning to invest Rs 50,000 for tax saving purposes. Please suggest me some Equity Linked Savings Schemes?
- Kapil Sharma
Tax saving schemes not only helps us save tax but they also perform well and give decent returns in the long-term. You can choose from Magnum Taxgain, Sundaram BNP Paribas Taxsaver, Franklin India Taxshield and Canara Robeco Equity Tax Saver.
What is the difference between liquid and liquid-plus funds? Do liquid-plus funds give more liquidity or more return or are they more tax efficient? Kindly explain the fundamentals behind them.
- Amit Das
Many people get confuse as the nomenclature of liquid-plus schemes gives an impression of something additional. The major difference between liquid and liquid-plus fund is the maturity profile of the underlying instruments. The debt instruments held by liquid-plus funds have a longer tenure than those of liquid funds. Hence, the average maturity of liquid-plus funds is higher.
Liquid funds invest in debt instruments that have a very short maturity. Liquid-plus funds invest in instruments that have a longer tenure and are therefore subject to more risk. Liquid-plus funds are a variation on the liquid fund theme. But they are somewhat riskier, but at the same time they offer slightly higher returns and are subject to lower taxation.
Dividend distributed by liquid plus funds is subject to an effective tax rate of 22.7 per cent while plain liquid funds' dividends are taxed at 28.3 per cent (in case of individual investors). Moreover, in some liquid-plus funds there may be an exit load while there is no exit load on liquid funds.
In a recent move, Sebi has made a set of changes to the rules governing liquid funds. To increase their safety, it has mandated that liquid fund managers rein in their maximum maturities to six months by February 1 and further to three months by May 1. Sebi has also asked for a change of names of liquid-plus funds as they give a wrong impression of added liquidity.
Real estate mutual funds were cleared by Sebi sometime back. Has any fund house launched, or is going to launch, such a fund?
- Sumanesh
The Reit (Real Estate Investment Trust) concept has been passed by Sebi. By buying the units of a Reit, investors can invest in real estate without owning physical property. But till now no fund house has launched such a fund. And none of the fund houses have filed an offer document for the same either.