MUTUAL FUNDS
Shall I continue with Franklin India Taxshield (D), Reliance Tax Saver (G) and HDFC TaxSaver (G)?
-AYESHA DAWSON
Franklin India Taxshield follows a conservative investment strategy and is suitable if you are willing to settle for lower returns for the comfort of a large-cap focused portfolio that negotiates downturns well. HDFC TaxSaver has shown good long-term performance though its performance in the last year-and-a-half has been much below expectations. Investments that you have already made will be locked in. But you should probably consider waiting for the fund to get its act together before you commit more funds, which will be locked in, too. Reliance Tax Saver in another fund that has not performed well and you should not invest further.
I am two years away from retirement and wish to switch over slowly from direct equity and diversified mutual funds to balanced and debt funds. I wish to know the following: Is long-term capital gain from equity-oriented mutual funds (65% in shares) tax-free? Does any dividend distribution tax (DDT) have to be paid by the MF or me? What are the similar tax provisions for debt funds and monthly income plans (MIPs)?
—RAHUL KRISHNA AGARWAL
Any long-term capital gains made on investments in equity-oriented mutual funds are exempt from tax. Equity funds do not pay dividend distribution tax (DDT) and any dividends received by you from equity funds are also exempt from tax. Dividends from debt funds and MIPs are similarly exempt from tax in the hands of the investor.
However, the fund pays DDT of 12.5% (plus surcharge and education cess). The short-term capital gains from these funds will be taxed at the marginal rate of taxation applicable to the investor while long-term capital gain is taxed at 10% (20% if the gains are indexed).
My wife and I want to restructure our mutual fund portfolio. We are not dependent on the income/appreciation of mutual funds, which we have held for the last two and a half years to four years. Can you suggest how we can realign our current joint MF portfolios with a two-three year horizon for optimum returns?
—AJIT SHIRODKAR
It is important for you to rebalance your portfolio periodically so that the allocation of assets between debt and equity is in line with your risk profile. It will also enable you to realize the profits that your investments have made. Your allocation to equity should be predominantly in large-cap and diversified equity funds.
Has the Securities and Exchange Board of India allowed Morgan Stanley Growth Funds to convert itself into an open-ended fund? I want to redeem some units.
—AISWARYA PUNNATH
The fund house has applied for conversion of the Morgan Stanley Growth Fund into an open-ended fund. Once the regulatory aspects of this are taken care of, units of the scheme can be redeemed from the fund house at the current applicable NAV. Till then, the units will continue to be traded on the stock exchange.
LIFE INSURANCE