Past returns are indicative

Past returns are indicative
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First Published: Sun, Apr 27 2008. 11 12 PM IST

(Jayachandran / Mint)
(Jayachandran / Mint)
Updated: Sun, Apr 27 2008. 11 12 PM IST
MF queries
How should one evaluate mutual funds?
—KUMAR GAURAV
Broadly, the two things you should look at in a mutual fund (MF) are—risk and return. For returns, look at the past performance. The longer, the better. Try to find out the consistency over a period of time. Although past returns are not a guarantee for future performance, it gives you an idea of how the fund is likely to perform.
Look at the fund’s risk levels. For instance, you can go through the monthly factsheets which give you a low-down on the fund’s performance against its benchmark. Check for simple things such as portfolio concentration because funds that are invested in too few scrips can be volatile. See how other schemes in the same fund house have done. If most schemes are not doing well, perhaps the MF’s pedigree isn’t all that strong.
In a bear phase, such as the present one, which funds are the best to remain invested in if one has an investment horizon of three years from now and one wants to invest through SIPs?
—SANJAY
No one really knows for sure if we have entered a bear phase. Though the Sensex has corrected by about 27% from its peak level in January, the long-term India growth story is still on track. As for some good funds for systematic investment plans (SIP), refer to our basket of schemes in “Introducing The OLM 50” (10-23 April 2008). These schemes have been star-rated and carefully chosen from around 2,000 schemes in India, based not only on their past performances but also future expectations. For your SIP requirements, pick two to four equity schemes from among diversified, large-cap, mid-cap and thematic categories.
Should I start an SIP in a high-NAV scheme such as the Principal Personal Tax Saver?
—GAURAV MAHAJAN
(Jayachandran / Mint)
Avoid Principal Personal Tax Saver and go for Principal Tax Savings (PTS) instead. PTS is an aggressively-managed equity-linked saving scheme (ELSS) that also offers section 80C benefits, up to an investment of Rs1 lakh. PTS takes aggressive exposure to small-cap scrips. Yet, it has managed its risks well and consistently given top quartile returns.
Further, the level of your fund’s net asset value (NAV) doesn’t really matter. It is a myth that a lower-NAV fund is better than one with a higher NAV. Your fund has a higher NAV simply because it has been in existence for long.
Lastly, note that each instalment of your SIP will get locked in the scheme for three years.
I bought units of UTI Contra Fund-Growth as an NFO. The fund has not performed well. Its NAV went above its offer price, that too slightly, just once in the last six months. Should I hold this fund or sell it?
—B. SINHA
UTI Contra Fund is a diversified equity fund that aims to invest in stocks that are contrarian in nature at a given point in time. Good and fundamentally sound companies that are undervalued by the markets at their current levels are eligible for UTI Contra Fund. The fund is barely two years old; it returned 13.6% in the past one year. It’s too soon to say that the fund is an underperformer as you need a slightly longer tenure, preferably three years, to take a call on the fund. Stay invested for a little longer if you seek to invest in a contrarian theme. But, if you are looking for a pure diversified equity scheme and do not much care for contrarian play, we suggest you exit and switch to a better performing scheme.
I earn Rs1.8 lakh per annum. I have three SIPs of Rs500 a month each in Reliance Growth, Reliance Equity Opportunity and Fidelity International Opportunities Fund. I want to start another SIP of Rs2,500 per month. Which fund should I go for?
—ABHI
As you already have a mid-cap, a diversified equity and an international fund, albeit quasi, opt for a large-cap-oriented fund. Birla Sun Life Frontline Equity, DSP ML Top 100 Equity, Reliance Vision and Standard Chartered Premier Equity Fund are some options.
Tax queries
What tax deductions can I get for repayment of a home loan?
—BALJEET
Primarily, you can get two types of deductions for a home loan, one on repayment of the principal amount of the loan and the other on the interest on the loan. Whether you reside in your house or give it out on rent, repayment of the principal amount of loan will qualify for deduction under section 80C. The maximum amount of deduction available for repayment of the principal amount is Rs1 lakh. Under section 24(b), up to Rs1.5 lakh can be claimed as deduction under the head “Income from House Property” for the interest component of a loan in case of a self-occupied house. However, the full amount of interest can be claimed as deduction in case the house is given on rent.
I want to take an education loan to do an MBA. Will the repayment of the loan qualify for income-tax deduction?
—GAURAV MAHAJAN
Repayment of interest on education loan for higher studies qualifies for deduction under section 80E of the Income-tax Act. Higher education means full-time studies for any graduate or postgraduate course in medicine, engineering or management, or any postgraduate course in applied sciences or pure sciences, including mathematics and statistics. No deduction is allowed for repayment of the principal amount. The entire amount of interest, without any limit, is allowed as deduction, provided it is paid out of the taxable income of the assessee. Further, the period of deduction cannot exceed eight assessment years, commencing from the year in which the first repayment is made.
I am retired. My sole source of income is interest paid by my bank. How much will I have to pay in taxes and charges if I earn a profit from stock market investments?
—AMAR SINGH
The amount of taxes you will have to pay will depend on your total income and age. If you have completed 65 years, you will be considered a senior citizen under the Income-tax Act, and from this financial year (2008-09), you will be required to pay income tax only if your net income from all sources exceeds Rs2.25 lakh. Your income consists of bank interest, which is chargeable under the head “Income from Other Sources”. The income from share sale and purchase will be taxed under the head “Capital Gains”.
If shares or mutual funds are sold within a year of their purchase, the gains thereof, called short-term gains, are taxed at a flat rate of 10% plus 3% education cess. This rate has been hiked to 15% plus 3% education cess with effect from financial year 2008-09.
However, long-term capital gains—from sale of shares or mutual funds more than one year after their purchase—are exempt from tax. To claim this exemption, the transaction should be entered through a recognized stock exchange in India and the securities transaction tax paid on the transactions.
(Please send your questions and comments to moneymatters@livemint.com)
(The views expressed on this page are not the newspaper’s opinion and are provided for information purposes only by ‘Outlook Money’. Readers are requested to do their own research. Neither ‘Mint’ nor ‘Outlook Money’ will be responsible for any actions and outcomes based on information provided here.)
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First Published: Sun, Apr 27 2008. 11 12 PM IST