Please mark all your queries / responses to
Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. and its affiliates, information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information. , its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.
The best time to start investing is today You are different and so are your needs Why your returns are not the same as the market’s return? Understanding Taxation in Mutual Fund Investments
Though debt funds have got their own advantages, they are mostly ignored by common investors. Debt funds have got a unique place in your portfolio. Here are five simple situations, in which debt funds can be used by prudent investors.

1.To meet short term goal:
If you have got a goals, which you are planning to achieve in a short term like one year or 2 year, then debt funds are the ideal place to invest. Debt funds are less volatile when compared to equity funds. Also you will have predictable returns. You also have a choice of different debts funds which can be matched to different short term horizons like 1 month, 6month, 9months, 1 year, 18 months and so on. You can’t take risk and invest your short term money in stock market. You need ensure safety and liquidity as far as short term investments are considered which is very much there in debt funds.

2.Any Time Money:
Under some circumstances, you may not know when the need for the money will arise. But when the need arises, you may need the money at short notice. Say situations like the down payment money which you keep it when searching for a property. Debt funds are the ideal place to keep our emergency reserve. Now-a-days liquid funds of a few mutual fund companies come with debit card facility. So you can keep your entire emergency reserves in these kinds of debt funds.

3.Lesser Tax than FDs:
If you fall under 20% or 30% tax bracket, then debt funds make more sense for you when compared to fixed deposits. The fixed deposit interest will be added to your income, and taxed at the tax bracket you are falling under whereas the debt funds if invested for more than one year will be taxed at 10% without adjusting for inflation. For less than one year, I will suggest you to invest under the dividend reinvestment option of debt funds. The reason is the dividends from debt funds are taxed at 13.51%. The interest from fixed deposits will be taxed on accrual. Even on your cumulative deposit, you need to pay tax annually. As far as debt funds are considered, you will be taxed only when you actually redeem from the debt fund.

4.As a Launching Pad for Equity Investments:
If you are planning to invest a lump sum amount in equity funds, then it is generally suggested that you should not invest the lumpsum in equity funds at one go. You need to stagger your investments in order to take advantage of the volatile stock market. So as to stagger your equity investment, you can use the debt funds as a launching pad. That is you can keep the entire money in debt fund and slowly you can invest them into equity funds in a staggered manner. If you would like to do this staggering in a more systematic and sophisticated manner, you can opt for STP –systematic transfer plan. That is you can give a standing instruction to transfer a fixed sum from a debt fund to an equity fund periodically.

5.To Generate Regular Income:
If you would like to generate regular income then debt fund is one of the ideal investments for you. You can get regular income by way of choosing dividend payout option. One more way to generate regular income from debt funds is to opt for SWP from debt funds. SWP is systematic withdrawal plan which is the reverse of Systematic investment plan. From a large sum of investment, you can opt to withdraw the appreciation or a fixed sum on a regular basis. Debt funds play an important role in anyone’s portfolio which can’t be replaced by any other investment vehicle. So, next time when you come across any of the above situations, make use of debt funds to your advantage.
You can invest through the mutual fund route by buying units of equity mutual funds. Even if you want the liquidity that cash offers, you can avail of the same by investing in liquid funds or ultra short-term. So you can see that a mutual fund scheme can work as a bridge to investing in various asset classes. This is because such a scheme is more like a pass-through vehicle for your investment in an asset class, but that scheme itself is not an independent asset. This characteristic also brings in flexibility for investor to diversify even with a small amount of money.

In short, for cash you can use liquid and/or ultra short-term funds which are very close to bank deposits. For investing in debt, you can use medium- and long-term debt funds, income funds or fixed maturity plans. They give you a steady income and tax efficiency too. And for investing in , you can invest in diversified equity funds, or large-, mid- or a small-cap fund and also in sectoral funds.
Mutual funds also offer a variety and choice to investors. As an investor, one can choose to invest his/ her money in funds from over thousands of funds managed by about 40 fund houses. “When an investor chooses to go with equities, he/she can opt for a growth fund or a value fund or even a fund which combines both. For those who prefer dividends, he/she can select income funds. The opportunities are limitless,” says a financial planner. One can also use mutual fund schemes for asset allocation. For example, allocation funds include equity funds and debt funds simultaneously by investing in equity and fixed income instruments in different proportions. Although here the fund manager decides in what proportion the allocations would be made to various assets while remaining within the broad contours of the scheme, “in effect, such funds are a one-stop shop for asset allocation”. The last but not the least is the tax efficiency that mutual funds offer. If one invests in debt instruments directly You may not enjoy all the tax benefits available in the mutual fund route.

For more details contact your Financial Planner.

The most important factor in investment is the time period of research has to be done before investing. As the idiom goes - haste makes waste - it's is better to do your homework before the taxman comes knocking at your door so that you do not end-up making hasty investment decisions.

While it is important to have adequate knowledge about the various tax-saving provisions under the Income Tax Act, it is also critical to learn about the major tax saving instruments that let you benefit from these provisions.

Section 80C:

One of the most important sections for tax saving is the Section 80/C of the Indian Income Tax Act. The total limit under this section is Rs 1.50 lakh . One should plan to utilize this section to the fullest by investing in some of the instruments shown alongside. Do consider the factors such as your financial needs and goals, your risk appetite, etc. before making your tax saving investment choices.

Equity Linked Savings Scheme (ELSS):

There are some mutual fund (MF) schemes specially created for offering you tax savings, and these are called Equity Linked Savings Scheme, or ELSS. The investments that you make in ELSS are eligible for deduction under Sec 80C. It also provides an opportunity for long term capital appreciation. An ELSS fund manager invests in a diversified portfolio, predominantly consisting of equity and equity related instruments that carry high-risk and have the potential to deliver high-returns.

Since it is an equity fund, the returns from this scheme are market determined.

Top five features of ELSS Funds

1. Tax-saving

2. Three-year lock-in period

3. Can be held even after the completion of three years

4. Offers dividend as well as growth options

5. Tax Saving instrument

Tax Treatment

The returns from an ELSS fund are tax free in your hands. The long term capital gains from an ELSS are tax free as well. This is because no tax is levied on equities that are held for more than a year. Since an ELSS falls under section 80C, you can claim up to Rs 1.50 lakh from your investment as a deduction from your gross total income.

Why prefer ELSS over other tax saving schemes

* Shorter lock-in period: An ELSS has a lock-in period of only three years as compared to other tax saving instruments such as Tax Saving Fixed Deposit which has lock-in period of five years.

* Long term capital gains: Since an ELSS fund invests in equities, and is dynamically managed by a professional fund manager; it has the potential to provide long term capital gains compared to other passively managed asset classes.

* SIP: Systematic Investment Plan (SIP) is an investment vehicle offered by mutual funds to investors, allowing them to invest using small periodically amounts instead of lump sums. One can plan effectively and invest in ELSS through the SIP (Systematic Investments Plans) route.



Bank FD rates for short term deposits have plummeted to close to savings account rates in many banks, and may remain soft for a while given the overall sluggish environment. Money should start flowing into debt funds offering superior risk adjusted returns, feels Ritesh. The current market is paying increasing compensation for taking prudent risk – a case in point from his data on spreads is the spread that’s still available in AAA corporate bonds even as PSU bond spreads have seen significant contraction since their March 20 levels.

There may appear room for more rate cuts, given that growth is weak and with demand destruction there is a case for disinflation. It seems that RBI’s accommodative measures were directed at rates and were aimed at easing overall financial conditions. It is a signal that RBI is fully aware of the current stress in the financial system and will do what it takes to ease the conditions. In the current backdrop of a very weak fiscal condition, as expected RBI is doing a lot of heavy lifting in terms of rates and policy measures and we can continue to expect that RBI (and government to the extent possible) will not lift the pedal off the accelerator until the economy begins to revive.

While the gradual release of lockdown and resumption of economic activity is positive, it is only so at the margin. Therefore, we expect RBI support to continue until there is a strong recovery in growth and therefore can expect more rate cuts and accommodative measures like OMOs (open market operation) , operation twists etc. to absorb G-sec supply.

Also it is imperative to note that, bulk of the rally has happened in the short-medium part of the curve. The longer end of the curve (10yr and beyond) has not seen a commensurate rally, despite the 115 bps of rate cut (75bp and 40bp) since the lockdown and a total of 200bps in the last one year. This is driven by overhang of uncertainty particularly on the fiscal side.

On a fundamental note, economies target growth rate needs to be > borrowing rate (G-sec) to not get into unsustainable debt trap. Therefore, to kick start growth and to keep debt on a sustainable basis, it will be necessary for RBI to keep rates (and therefore borrowing rates) lower for a prolong period until there is strong pickup in growth. Along with, there are many multiple variables at play that determines the overall yield curve move. We continue to remain constructive on the rates but still like the front/medium part of the curve factoring in those risk/return trade-off.

Indian bond markets do see a material impact from global markets predominantly from a) flows via FPI in both equity and debt b) impact on the currency front with resultant impact into current account deficits. Overall, global risk on scenario will benefit India, as flows into the equity and fixed income positively impact currency (keeping currency stable or avoiding undue volatility), and also helps in absorption of debt supply.

With liquidity continuing to remain in surplus mode, and expectation of RBI measures (such as OMOs) ensuring that liquidity remains in surplus mode, we believe current risk reward is favorable in the short/medium part of the curve. Longer end of the curve has an overhang of supply driven by fiscal constraints. The overall curve will remain supported via switch operations, OMOs, twist operations and buyback but value appears in the short/medium part of the curve.

In the credit spectrum, we would expect one to tread with caution and be mindful of the risks. While ratings are an indication of the credit risk at a point in time, it is not forward looking and different rating agencies have different methodologies. Therefore, investors should go beyond ratings and be mindful of refinancing risks and illiquidity as well.

From overall environment perspective too, it no longer pays to keep your money locked up in a bank. Fixed deposit (FD) rates have plummeted in recent months, with short-term rates now hovering very close to or below savings account rates for some banks. Surplus liquidity and sluggish credit growth have forced banks to cut rates of both short-term and long-term deposits. With deposit rates dropping so low, we do see flows starting to move to cash and debt mutual funds- which still remains potentially one of the better avenues to park surplus for investors and offers best in class risk-adjusted returns.
Please mark all your queries / responses to
Information provided on this newsletter has been independently obtained from sources believed to be reliable. However, such information may include inaccuracies, errors or omissions. and its affiliates, information providers or content providers, shall have no liability to you or third parties for the accuracy, completeness, timeliness or correct sequencing of information available on this newsletter, or for any decision made or action taken by you in reliance upon such information, or for the delay or interruption of such information. , its affiliates, information providers and content providers shall have no liability for investment decisions or other actions taken or made by you based on the information provided on this newsletter.