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| Stock market scams, fear of war and even the technology sector downturn basically resulted in the steep fall of the share market, scaring retail investors away not only from the equities but also from equity-based schemes launched by the mutual funds.
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| As a defence the MF industry discovered and aggressively sold debt-based instruments. In recent months I have vociferously said that the Pure-Growth Open-ended Debt-based schemes (PODs) launched by the MFs had emerged as the only parking place for all the investible funds of all the assessees, retail or otherwise.
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| Being pure-growth, these are quite tax efficient. Instead of paying tax on normal income @10 per cent, 20 per cent or 30 per cent, depending upon the size of the income, it is good to pay it @10 per cent, which is the rate applicable to long-term capital gains.
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| Now suppose you invest Rs 80 lakh in a POD and at the end of one year, it grows to Rs 86.4 lakh (= growth rate of 8 per cent p.a.). You decide to strip the growth by withdrawing Rs 6.4 lakh.
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| The capital portion of this withdrawal is Rs 5,92,593 (= (80 / 86.4) x 6.4 lakh), the rest Rs 47,407 being capital gain. The tax on this growth is Rs 4,701 (= 10% of 47,407).
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| This implies that you have got Rs 6.4 lakh in hand but tax thereon is only Rs 4,701. This works out at 0.73 per cent tax and not 10 per cent, as is the general impression.
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| Finally, if you have no other income, your total income is Rs 47,407 and this being lower than the tax threshold of Rs 50,000, you do not have to pay any tax.
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| Being debt-based, the safety of the capital as well as the income (around 12 per cent + at this juncture) is implicitly certain but not explicitly assured.
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| However, now the market has started looking up, thanks to the measures taken in the budget to prop up the market, including soft interest rates which boost the bottom line of companies, the expectations of a good monsoon, falling oil prices, excellent results posted by many companies and many other factors.
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Some market gurus have predicted that the market will now witness a record bull phase. This could be the time to shift over to the pure-growth open-ended equity-based schemes (POEs), especially those of you who have some risk appetite and believe in the adage,
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