Dividend payment by ELSS

Q&A: FUND QUERIES

You are right about equity linked savings schemes (ELSS) having a lock-in period of three years. Once that period is completed, you can redeem your investment.

In the case of dividend reinvestment, the dividend declared is reinvested in the scheme itself. So it would be locked-in for three years as well.

In case of dividend payout, the dividend amount is distributed to the investor and so no lock-in period is applicable on it.

 

Now let's talk about your example. You get 10 additional units on March 30, 2009. These units would be locked-in for three years from the date of reinvestment. So, you would only be able to redeem these 10 units post March 30, 2012. However, the units allotted initially can be redeemed on or after April 1, 2011.

I would like to invest Rs 50,000 in the stock market every month. Should I invest directly in the Sensex 30 shares or should I take the mutual fund route? Please suggest.

- Phani Shankar

At a time when the equity market is subject to high volatility, it would be preferable to invest through the mutual fund route. Not to mention the convenience too.

As you are planning a huge monthly investment of Rs 50,000, investing through a mutual fund will help you cut down on the risk involved and also get the benefit of professional management offered by the fund managers.

Apart from this, you can also entail the benefit of investing on a monthly basis through a systematic investment plan where you periodically invest in your fund.

If you are confident of your risk taking ability and are equipped with the right skills required for direct investment, then you could tap the stock market directly.

Why should one opt for a pure debt fund as compared to other safe investments like bank fixed deposits? For example, Kotak Flexi debt has given a return of 7.21 per cent for a period of three years. A bank deposit would fetch more.

- Rahul Maheshwari

Fixed deposits are secured investments when compared to debt funds. Sometimes they may offer higher returns as well. But the main point of difference is in the tax treatment of gains. The interest earned on a fixed deposit is added on to your income, irrespective of the term of the deposit.

Further, there is no distinction between short-or long-term capital gains tax in fixed deposits. What makes debt funds a better choice is the tax treatment on its gains. The short-term capital gain on debt funds is added to your income .But in case you redeem the investment after one year (long-term capital gains), you can avail the indexation benefit.

If I invest directly into a mutual fund without the help of a broker/agent I will not bear the entry load. Please explain the procedure of investing directly in a mutual fund? If I invest through a bank, will it be treated as direct investment?

- Dharmendra Pasricha

No, investing through a bank is not considered as direct investing. If the application form for buying units is filled in and submitted by the investor directly at the asset management company's (AMC) office or an investor service centre or specified collection centre, the investor need not pay the entry load. If the fund has the option of buying units online, that too is considered "direct investment".

An investor can invest directly in a mutual fund in three different ways;

LOCATE THE NEAREST OFFICE OF THE AMC IN YOUR CITY.
Visit the office, fill up the form and submit the documents. Your bank does not double up as a branch office for the mutual fund house. The bank and the mutual fund house, in spite of belonging to the same group, are two different entities. 

CHECK FOR COLLECTION CENTRES OR INVESTOR SERVICE OFFICES
If the AMC does not have an office, collection centre or investor service office in the city, you may have to courier your form. If the cost of the courier is the same as the entry load, it would make sense to hire an agent and save yourself the trouble.

APPLY ONLINE
Visit the web site of that particular fund house and see if they offer an online option. Here you will need to fill up your personal and investment details as asked in the application form and quote your Permanent Account Number (PAN), which is mandatory. When investing online, mutual funds tie up with various banks for transfer of money. Do check that your bank is on that list.

Another option is to the payment through a cheque/demand draft. In that case, you would need to courier the same. In case you opt for a systematic investment plan (SIP) you can choose the Electronic Clearance Scheme (ECS). Some fund houses do not offer SIP investments, online. You would have to go to a branch to do the same.

Also remember, that an agent will take care of all the paper work and will also be around if you need help at redemption.