I want to exit from some of my 10 schemes. Which ones should I move out of?
You should prune your portfolio to six-seven schemes. The schemes that you retain should help you meet your objectives and needs such as tax planning. Ensure that your mutual fund (MF) portfolio has a mix of large-cap and mid-cap-oriented funds. An international equity fund could help in diversifying the risk. You may also consider a sector fund that has exposure to the infrastructure or power sectors, although the associated risk may be high. Eliminate schemes that lead to duplication of portfolios and styles. Retain the ones that have shown good performance over the long term in various market cycles.
I have been investing Rs2,000 through a systematic investment plan (SIP) in Franklin India Prima Fund and Magnum Contra for one year now and want to continue for the next five-seven years. However, the funds’ performance was not good in the past year. Have I chosen the correct fund?
—TAPAS SARKAR, SILIGURI
You have a long-term investment perspective, which is good. FIPF has underperformed in the last year like many other mid-cap funds. You can stay with the scheme if you are willing to put up with some volatility in the fund. Magnum Contra has delivered decent returns and you may continue with it.
I want to invest in MFs through the Internet. What options will give me access to all the schemes?
— S.RAWAT, EMAIL
Some e-broking sites such as Icicidirect.com provide you with the option to buy and sell any MF scheme online. Some MF websites also allow you to invest online. However, you must check if you have an account with the banks they have partnered with. For example, Prudential ICICI MF allows you to buy funds online if you have a bank account with any of the following banks—Centurion Bank, HDFC Bank, ICICI Bank, IDBI Bank or Axis Bank. Similarly, you can buy units of SBI MF schemes only if you have an account with State Bank of India or HDFC Bank.
I have one-year SIPs in HDFC Prudence, HDFC Equity, Franklin India Prima, Magnum Contra, Reliance Vision and Reliance Growth. Every year, I review my portfolio of funds. This year, I found that Franklin India Prima Fund is an underperformer. Should I exit and switch to a better performing fund within the same fund family, or should I stop the SIP? The same thing may happen to other funds in my portfolio next year. What should be done in such a scenario?
—SIDHARTH NAIK, EMAIL
Franklin Prima has underperformed in the last one year, as have many of the other mid-cap funds. You should exit if you are uncomfortable with the volatility in the fund. However, you have good schemes and temporary underperformance should not bother you unless there are fundamental changes in the fund.
I want to gift a few units of a scheme for around Rs20,000 to my daughter for the long term. Is it possible to get gift vouchers for schemes? Which category of funds should I go for?
—SAHIL DHANWANTE, GWALIOR
There is no concept of gift vouchers for MF schemes. MF units gifted to your daughter will not be liable for gift tax. You may either buy them in your own name keeping your daughter as the nominee, or in your daughter’s name individually. Your choice of fund would depend upon your purpose of investment and investment horizon. Since your investment is for the long term, you can comfortably look at any of the good performing diversified equity funds.
I invested in Reliance Vision Dividend and Birla Dividend Yield Plus when the market was at a high in May. Both the funds have depreciated by huge amounts since then. They have not reached the prices at which I had purchased them even as the Sensex has hit new highs. Should I hold my investment or pull out?
—V. VENKATRAYUDU, EMAIL
Reliance Vision has performed well in the past one year and also has a track record of more than five years. You should stay with Reliance Vision. However, you should think of exiting Birla Dividend Yield as its returns have been consistently low. You may invest in funds like Franklin Prima Plus or HDFC Equity, among others.
What is a financial year, a previous year and an assessment year in income tax (I-T)?
— ROHIT SAXENA
A financial year is a period of 12 months commencing on 1 April of a year and ending on 31 March the next year. An assessment year is the year immediately following a financial year. In I-T, the financial year is the period during which the income has been earned. A year before the financial year is referred to as the previous year. The income earned in a financial year is assessed in the following year, that is, the assessment year. For example, income earned between 1 April 2006 and 31 March 2007 (financial year 2006-07) will be assessed for tax in the year, 2007-08.
I am a partner in my family business. I also earn income from other sources. Will my share in profit from the firm be exempt from tax? In case of a loss, can I set it off against my other income?
—JEEVAN LALL, EMAIL
The share of a partner in a firm in its profit is exempt in his hands as the firm pays tax on its net profits. To avoid double taxation, a partner in a firm is not required to pay tax on his share in its income. Partners in a firm cannot set off their share in loss from it against personal income because this loss is from a source the income of which is exempt from tax. This loss, thus, cannot be set off against any taxable income from any other source of income.
My 18-year-old son gets a scholarship for his engineering course. Will the entire scholarship be tax-free? Or will the tax break depend on the cost of his studies?
—PUNEET VAID, EMAIL
Scholarship money received from any approved institute to meet the cost of education is exempt from tax. Since the purpose of granting scholarship is to help a student complete his education, the question whether the amount of money received is adequate or in excess of his requirements is besides the point.
I have let out my flat and my tenant pays municipal and other local taxes on it. He wants me to include these payments in the rent receipts I issue him. Do municipal taxes paid by a tenant form part of the total rent received by his landlord?
— DINESH SHUKLA, EMAIL
The payment of municipal taxes by a tenant is of the nature of a payment to meet the statutory liability of his landlord and is in no way related to the letting out of the house. Therefore, municipal taxes cannot be added to the actual rent amount where the tenant is required to pay them. Municipal taxes can be claimed as a deduction from the rent received if the landlord pays them.
Sometimes I am not able to pay the equated monthly instalment (EMI) of my home loan on time. Will that have any effect on the I-T exemption that I claim for paying EMIs?
—PARIJAT DE, EMAIL
Section 24 (b) of the Income-tax Act allows deduction of interest due on home loan from the head “Income from house property” even if it is not paid during the previous year. Section 80c of the Act, on the other hand, allows deduction of the principal amount of home loan only if it is actually paid during the previous year. Hence, non-payment of EMIs will affect your I-T exemption.
My 10-year-old daughter has received offers for acting in ads. If she works, will her income be clubbed with mine? Or will I have to file a separate tax return for her?
—SHIREESH KOUSHIK, EMAIL
As per the Income-tax Act, a child under 18 years of age is treated as a minor and her income is clubbed with the income of the parent (parents living together), whose income is greater, except in certain cases. Income derived by a child from manual work or by application of her skills, talent or specialized knowledge and experience is excluded from the clubbing provisions. Thus, income earned by your daughter from ads and acting will be taxable in her hands and a separate return will have to be filed for her under your guardianship.
I have joined a private sector bank after working in a public sector bank for 10 years. I got Rs2 lakh as my Provident Fund (PF) dues. Is this amount taxable?
—SUSHANT SAXENA, EMAIL
If you were a member of a recognized PF, the withdrawal of the gross amount from the PF account on voluntary resignation from job after continuous service for 10 years (more than the stipulated minimum period of five years) will not be taxable in your hands. Also, at the time of switching jobs, the employer asks you to choose between withdrawing the balance in your PF account, and transferring it to the PF account that will be opened for you in your new organization. If you get the balance in your PF account transferred to your new account, you will not incur any tax.
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