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| Even if retired, keep some money in equity |
| BS Research / Jul 19, 2009, 00:10 IST |
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I am a retired army pensioner and have deposited all my savings in bank fixed deposits. But I am losing a considerable amount on account of TDS, which the bank deducts on the interest payments. Currently, I want to invest Rs 1 lakh in some debt fund with a horizon period of one year. Please suggest some good mutual funds which can yield more income than bank fixed deposits and be tax friendly. Being retired, I cannot go for equity schemes.
- Daya Nand Sharawat
If your interest income from bank fixed deposits falls well under the tax-exempt limit, tax deduction at source (TDS) can be avoided by submitting the details in Form Number 15A with the bank.
In the short-term, debt funds (other than cash funds and short-term floating rate funds) can offer a tax advantage over fixed deposits when the dividend option is chosen. As your investment horizon is one year, we suggest you invest in liquid plus funds. The post-tax returns can be higher here. The dividend distribution tax (DDT) applicable on dividends in debt funds (including liquid plus funds) is 14.16 per cent. For cash and ST floating rate funds, it is 28.32 per cent.
After one year, the capital gains in debt funds are taxed at a lower percentage as compared to a bank FD - 10 per cent without indexation and 20 per cent with indexation. Short-term capital gains will be taxed as per the individual's tax slab.
I am planning to invest in a Gold ETF through SIPs. Is it a good option? If so, which ETF do you suggest?
- Prabhu Swaminathan
Gold can be held for some added diversification in a portfolio. Although gold is an appreciating asset in present times, the exposure to gold should be limited to 5-10 per cent of the total portfolio value.
All gold exchange traded funds (ETFs) invest a minimum 90 per cent of their assets in physical gold and a small portion can be kept in cash and fixed income instruments to meet liquidity needs. You can pick any of the gold ETFs available in the market.
I had invested in Franklin India Prima Fund-Dividend Payout Option through SIPs three years earlier, when it was enjoying 5-star status. I discontinued my SIP in the fund when its ranking slipped below 4-stars two years before. But I did not redeem the units. I find it has been giving dividends of 60 per cent continuously for the past three years. Why should this happen? Is there any difference in performance of 'Growth' and 'Dividend-Payout' options? Shall I switch to another fund in the same category? If yes, please suggest a few good funds.
- Vinayak Hari Gadre
Franklin India Prima is past its best years. It has been a bottom of the quartile performer for the past three years, i.e. 2006 to 2008, on an annual basis. For the current year as well, the fund has been an average performer, despite a portfolio heavy on mid-cap stocks which have otherwise been the out-performers in the current year. You should redeem your investments from this fund. A fund pays dividends out of the distributable surplus which may come from gains of previous years. Moreover, the dividend is calculated as percentage of the unit face value.
Franklin India Prima is a mid-cap oriented fund and Sundaram BNP Paribas Mid-cap, Reliance Growth or DWS Investment Opportunities can be good mid-cap replacements for it. However, if this is your core holding, then we suggest you invest in any of the following large-cap diversified equity funds: DSPBR Top 100 Equity, HDFC Top 200, Magnum Contra, DWS Alpha Equity, Birla Sun Life Frontline Equity.
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