Growth option is better
FUND QUERIES
You need to understand that though a dividend payout option and a growth option are identical in terms of returns, they differ on a few aspects. Under the dividend payout option, when a dividend is declared, the NAV falls in the same proportion. Whereas, in the growth option all the gain is reflected in the 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 option.
I wish to know that if I invest in an FMP (Fixed Maturity Plan) for one year and above, will the capital gains earned on it be taxable?
Yes, like other debt funds, the long term capital gains on FMPs are taxable, though there is an indexation benefit in case of long term capital gains. So if the investment is for more than a year in the growth option, one has to pay long-term capital gains tax of 20 per cent with indexation, or 10 per cent without indexation on debt products and FMPs
I have invested in diversified equity mutual funds for the past two years. I have opted for the dividend reinvestment plan. Although my original investment is more than a year old, the dividend reinvested is less than a year old. I decided to switch from one scheme to another within the same fund house. Will I have to pay short term capital gains on the dividend units which were reinvested?
Yes, you will have to pay short term capital gains tax on the appreciation in the reinvested units since they have not completed one year from the time of reinvestment to the date of redemption. For calculation of tax liability, the reinvested dividend units are considered separately
I am a government servant and a daily visitor to your website and try to invest according to your guidelines. I came to know from your website that short term capital loss 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 gains are exempt from tax
I am 30 yrs old. I want to invest in MIP plans for a period of 5 years. I want to know whether the fund is bought on the basis of NAV of MIP or on the lump sum principal payment. Will I get guaranteed monthly income? Why do they ask for a minimum investment of Rs 5000? If I want to get a monthly income of Rs. 2000/month, how much should the investment be? Also tell me which is the best performing fund for MIP?
Open-end funds are always bought and sold at NAV-linked prices. The level of NAV is not material, performance is. You get return on the units you buy. For instance, for Rs 1 lakh, you will get 10,000 units of a fund with NAV of Rs 10. You will get 5,000 units of another fund with NAV of Rs 20.
Your return depends on the performance of the fund after you invest. If both funds do equally well and grow 15 per cent in a year's time, your return in both funds will be equal.
Every fund has a stipulated minimum investment, which in their view is the minimum value of an investment account they want to serve.
However, mutual funds don't provide guaranteed return. It will be reasonable to expect an equivalent of risk-free return i.e. the deposit rate on a one year fixed deposit from an MIP.