Readers' Corner: Mutual Fund

If I switch from my existing equity mutual fund (MF) scheme, which I have held for three years and move to another scheme in the same fund, will I have to pay tax?

Equity investing offers the benefit of tax-free returns if the holding period is greater than a year. Since you have held your investment in an equity MF for more than a year, you will enjoy tax-free returns. Having mentioned that, staying invested for the long term helps create better wealth.

After my father passed away, we found he had invested some money in a fund house that no longer exists, as it was merged with another. We don't know what has happened to that money. How can we get it back?

When a scheme gets merged into another, the first scheme ceases to exist. The board of directors of the asset management company and trustee company take adequate steps to ensure investors' interests are protected. Also, MFs provide intimation well in advance of the merger date. Units from the surviving scheme would have been allotted to the investor equivalent to the investment value. You need to contact the fund house with which the first scheme has merged to seek details of your investment and its value.

As a co-operative housing society, all our investments are currently in co-operative bank deposits. Can we invest in debt MFs?

Yes, a co-operative housing society can invest in MFs, depending on the investment objective. For example, if the purpose is a short-term one, such as taking care of society maintenance and repairs, it makes sense to invest in a debt fund with high liquidity and low risk, such as liquid funds. For a longer investment horizon, one can look at income or duration funds. You can simply invest through any financial intermediary or any branch of the MF company or investor centres.

What is the difference between equity funds and equity income funds?

Equity funds purely invest in equity and equity-related instruments. Equity income funds invest 20-40 per cent (net exposure level) in equity and equity-related instruments to grow the portfolio and derivatives to take advantage of arbitrage opportunities; the remaining is invested in debt to generate regular income. Both categories ensure tax efficiency when held for more than a year, as equity and equity-related instruments constitute 65 per cent of the portfolio. It is important for an investor to understand the investment risk profile, based on which one could decide the asset allocation (how much of one's wealth should be invested in which asset class). For conservative investors, equity income funds are a suitable investment solution that aims to provide a long-term wealth creation solution with equity and relative stability with debt, along with tax efficiency. However, investors with a good appetite for risk could make a larger allocation towards equity funds.

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Nimesh Shah, Managing Director & Chief Executive Officer, ICICI Prudential Asset Management Company, answers your questions

The views expressed are expert's own. Send your queries to yourmoney@bsmail.in