STCL can be carried forward for 7 years

FUND QUERIES

I am a government servant. I recently heard that short-term capital loss (STCL) can be carried forward up to seven years, but what about long-term capital loss? If it cannot be forwarded then is it not advisable to book loss this time to adjust against profit of a later date?

Yes, you are right that the short-term capital loss can be carried forward to the next eight assessment years if it cannot be set-off against the current year's long term or short-term capital gain. But the long-term capital loss cannot be carried forward or set-off, since income from long-term capital gain are exempt from tax.

I am holding mutual funds worth Rs 12 lakh in my portfolio and all of them are with dividend payout options. One of my financial consultants advised me to switch all of my funds from the dividend to growth option. Is it a constructive suggestion and what are the benefits of it?

You need to understand that though a dividend payout option and growth option are identical in terms of returns, they differ on a few aspects. Under the dividend payout option, when dividend is declared, the NAV falls in the same proportion. Whereas in the growth option all the gain is reflected in NAV.

One more thing to be considered is the tax implication. The dividend on equity funds are tax free. But the capital gain on equity funds is taxable if the units are sold within a year. The long term capital gain is tax free.

So a dividend payout option is beneficial only if you need regular income or if you are planning to redeem your investments within a year. But if you have a long term investment horizon and have other sources of income, then you can opt for the growth options.

My father is a retired government servant. He invested the money which he got on retirement with Shriram Chits partly in his name and partly in my mother's name. Both are getting monthly interest of Rs 350 on their investment.

With rising inflation, I was suggesting them to invest the amount they get with additional Rs 150 (total of Rs 500) in mutual funds through SIP so that they would be able to get a return beating the inflation. Was my suggestion correct on the approach to tackle inflation and getting a good return on their investment? If yes, can you suggest some mutual funds with monthly installment of Rs. 500/- which can give them some considerable returns of 15-20 per cent yearly.

It may be a good idea, only if your parents can invest and don't need the money they are getting for consumption. Equities and equity funds can be a good hedge against inflation over the long-term. But it is not a desirable investment for deriving steady and regular income.

If you wish to invest in equity funds, then choose from well rated diversified funds like Birla Frontline Equity, HDFC Equity, Kotak 30 and Magnum Contra and invest periodically through SIPs.

My query is regarding the term "Risk Grade" used in your data relating to mutual funds. When you say that the Risk Grade is "Low", does it mean that that the risk is low in investing in that mutual fund.

Hence a mutual fund may be considered as a better option compared to the one with high risk Grade, all other things being equal or does it mean that keeping in mind the risk, the quality of that mutual fund is low and should be avoided compared to a mutual fund whose quality is "High" (i.e. when the Risk Grade is High)?

Simply, between two mutual funds, when all other parameters are equal, should one invest in a mutual fund with Low Risk Grade or in one that has High Risk Grade?

Yes, a fund with High Risk Grade is considered relatively more risky than fund with Low Risk Grade. The Value Research Fund Risk Grade captures the fund's risk of loss. A fund with High Risk Grade has more chances of incurring loss as compared to the one with Low Risk Grade, which makes it relatively riskier.

To calculate Fund Risk, monthly/weekly fund returns are compared against the monthly risk-free return for equity and hybrid funds and weekly risk-free return for debt funds.

For all months/weeks the fund has under performed the risk-free return, the magnitude of underperformance is added. This helps us to arrive at the average underperformance and how the fund has performed vis-à-vis its category average. The relative performance of the fund is expressed as a risk score.

The risk score of a fund is then assigned according to the following distribution: 

RISK SCORE
High	Top 10 %
Above Average	Next 22.5%
Average	Middle 35%
Below Average	Next 22.5%
Low	Bottom 10%