Funds don't invest in commodities directly

FUND QUERIES

I am not keen on investing in mutual funds that invest in stocks of commodity-oriented companies. Are there any mutual funds in India that invest directly in commodities? Is there any possibility that such a fund could be launched in the near future? Also, what are the options in the market at present to tap commodities in the overseas market? What will be the minimum amount required for investing in such funds?

- Rajendra Pratap

At present, mutual funds do not invest directly in commodities. They are not yet authorised to invest in commodity futures. However, there are some, which act as a substitute, for commodity funds.

 

For instance, Magnum COMMA invests in stocks of domestic companies engaged in the commodity business. There are some others like, ING Optimix Global Commodity Fund and Mirae Asset Global Commodity Stock Fund, which put money in overseas mutual funds that invest in stocks of commodity-oriented companies abroad.

But overseas, there are funds that invest directly in commodity futures like PIMCO Commodity Fund, Rydex Commodities Fund and Oppenheimer Real Asset Fund to name a few. The minimum investment amount for these funds is around $5,000 (Rs 23,500@1$=Rs 45). For further details regarding these funds, you can visit their websites.

I am confused whether DSPML Equity (growth) was launched in June 2007 or April 1997. I have seen two different launch dates at several places. Is it wise to start a Systematic Investment Plan (SIP) in this fund?

- Jojo Jacob

The DSPML Equity was launched in April 1997 with only a dividend plan. A decade later, in June, a growth option was introduced in the scheme with a net asset value (NAV) of Rs 10. That is why you must have seen two different dates of launch for the same fund. Even the underlying portfolio is the same for both these plans. Hence, the performance of both – the growth and the dividend plans – remains the same.

DSPML Equity is a well-diversified fund and has a good track record. You can choose any plan (growth or dividend) as per your need. If you are looking for long-term investment, it would be better to pick up the growth option and invest via an SIP.

I have invested Rs 50,000 in DSPML Balanced Fund. At the same time, I did a Systematic Transfer Plan (STP) of Rs 2,500 per month from this fund to DSPML T.I.G.E.R. I have not redeemed any units from either of the two. Will it attract any tax or loads (exit/entry) for the monthly transfer?

- Venkat

An STP is essentially a combination of two events --redemption from one fund and investment in the other. In your case, you have switched from DSPML Balanced Fund to DSPML T.I.G.E.R. By doing so, you are actually redeeming your investment in the balanced fund and investing the proceeds in the T.I.G.E.R. Instead of doing it yourself, the fund house is doing the necessary paperwork, since you have opted for a monthly STP option.

DSPML Balanced Fund is treated as an equity fund for taxation purpose. Therefore, if your investments in the DSPML Balanced Fund have been for less than a year, before the start of STP, your monthly withdrawals would be taxed at the short-term tax rate. If the period of investment has been more than one year, then your tax liability would be zero.

As for your second query, you would have to pay both the entry and exit loads if you have invested in DSPML Balanced Fund before April 1, 2008.

I plan to put Rs 10 lakh in a debt fund through the dividend re-investment option. What will be the tax treatment if I opt for a Systemic Withdrawal Plan (SWP) of Rs 7,000 a month from the very next month?

- Debasish Majumder

Short-term gains arising from your investment would be added to your income and taxed as per your tax slab. Moreover, as you have opted for dividend re-investment option, your dividend would be subject to Dividend Distribution Tax (DDT), which you can easily avoid if would opt for a growth plan in place of a re-investment plan.

I have invested in equity-oriented mutual fund schemes. As mutual funds charge an entry load of 2.25 per cent on purchase of a fund, what will happen after 10 year when one redeems the fund? Will 2.25 per cent be charged on the principal amount and will it go to the broker?

- Dincken Dsa

An entry load is charged only at the time of investment in the fund, if the money is paid through an intermediary. The exit load is charged at the time of redemption. If your fund has no lock-in or has a 10-year maturity period, no exit load will be imposed on you.

What is termed as alpha while discussing the mutual fund's performance?

- Anup

Alpha is a statistical term that helps to measure the risk-reward profile of a mutual fund. It is the measure of a fund’s performance, with respect to the performance of the index against which, the fund is benchmarked. In simple words, it tells us about the fund’s performance, that is, what the fund has earned vis-a-vis the performance of the underlying index.

A positive alpha indicates that a portfolio gives better-than-expected returns at the same level of risk and a negative alpha suggests that the portfolio has underperformed, given the level of risk assumed.

For example, if the alpha value of a fund is 1 per cent, it means that the fund has outperformed its benchmark index by this margin. Conversely, a negative value of alpha, say -1 per cent, indicates that the fund has underperformed its benchmark index.