Is the DSPML World Gold Fund an equity fund or a debt fund? At some places it is classified as an equity specialty fund, but I am told that for tax calculations it is considered as a debt fund. Could you kindly clarify the same for me that what are the tax implications for this fund?
-Dr Deepak Ray
The tax treatment for this fund is same as debt fund because more than 65 percent of the fund corpus is invested in stocks of foreign companies. Long term capital gains tax is not levied only in the case of equity funds. Equity funds are defined fund that invest more than 65 per cent of their assets in Indian companies. Any fund not fulfilling this criterion will be subjected to the rules of debt fund.
DSPML World Gold fund is an equity-based fund of funds scheme. A large portion of this fund is invested in overseas mutual fund schemes, which in turn invest in stocks related to gold mining companies.
Since past few months, UTI Spread Fund's portfolio is similar to a debt fund, with very little equity in it. Will the fund lose its equity diversified for tax purpose?
-Zarir Wadia
UTI Spread fund is a hybrid: arbitrage fund; this should not be confused with an equity diversified fund. The aim of an arbitrage fund is to make profit by taking arbitrage opportunities arising due to price mismatch between spot and derivative market. This fund can therefore change asset allocation pattern from equity to debt and vice versa according to market situation.
A fund can be classified as an equity diversified only if more than 65 per cent of its portfolio comprises of equity. If any equity oriented fund does not follow the above condition for a given financial year (April-March), it will be treated as debt fund and the tax treatment will be the same as debt fund.
For your information, the UTI Spread Fund has shifted their major portfolio from equity to debt from January this year.
I had bought Reliance Mutual Fund's Equity Linked Saving Scheme (ELSS) in October, 2005. I will be able to redeem within next two months. Can you suggest me how should I go ahead and whether the amount have an exit load? Will the profit be taxable?
-Sanjay Patil
An ELSS contains a 3-year lock-in period after which you can withdraw your money from the fund without paying any exit load. Since it is an equity fund held for more than a year, your profits from this fund will be exempted from tax.
I have invested 25 per cent of my corpus in New Fund Offers (NFOs) like Franklin High Growth Companies, Reliance Equity Advantage, JM Core-11, JM-Agri and Infra, AIG India Equity fund. But I recently heard that investing in NFO is not a good strategy. What should I do with these funds, especially the two funds from JM Asset Management? Can you suggest some funds in in Midcap and Flexi cap category?
-Suril Patel
Newly launched JM Core-11 Series-1 and JM Agri & Infra fund are close-ended equity diversified fund with three years maturity period. JM Agri and Infra fund invest their corpus in mid & small cap companies associated to agriculture and infrastructure sectors. This makes it riskier than the large-cap oriented infrastructure fund. In recent market down fall, this fund's return has declined more than large-cap oriented infrastructure funds as well as the category returns. Infrastructure-based funds may perform better in the long term.
JM Core-11 Series-1 fund is also a mid-cap oriented fund and it has also failed to perform. Since these are new funds, there is no record on their long-term performance. It is too early to comment on these funds. Take a close watch on their performance regularly if you want to remain invested.
It is always advisable to invest in proven funds which have sound track record over periods. People generally get attracted towards new fund offer (NFO) due to its low NAV. You may take a look at Reliance Growth, Sundaram Select Midcap or Magnum Multiplier Plus for your investments in mid-cap oriented funds.
