Skip to main content

Less volatility for mutual funds

The Union Budget for the year 2008-09 has proposed to increase the short-term capital gains tax. The proposal is to increase the tax from 10 to 15 per cent. A short-term capital asset means a capital asset held by an assessee for not more than 12 months prior to its date of transfer. These assets would include equity and preference shares, debentures, government securities, units of UTI and other mutual funds, and zero coupon bonds.

In case these assets are held for more than 12 month immediately prior to transfer, it is a long-term capital asset. The budget proposal to increase the short-term capital gains tax to 15 per cent did not go down well with investors, and the benchmark Sensex dipped.

In addition, the Finance Minister has proposed changes in the securities transaction tax (STT), which will now be treated like any other deductible expenditure against business income. The Finance Minister has proposed that in case of sale of an option in securities, the levy of STT would be only on the option premium where the option is not exercised and the liability would be on the seller. The STT would be levied at the rate of 0.017 percent of the option premium and will be paid by the seller.
However, where the option is exercised, the levy would be on the settlement price and the liability would be on the buyer. STT on such a transaction would be levied at the rate of 0.125 percent of settlement price and would be paid by the purchaser.

In case of a sale of a future in securities, the STT would be levied at 0.017 percent and is to be paid by the seller. Meanwhile, there would be no changes in the present rates.

The Finance minister has also introduced the commodities transaction tax (CTT) on the lines of STT on futures and options. Service tax imposed on unit-linked insurance plans (ULIP), which compete with funds, would bring them at par and make them relatively more expensive, indirectly benefiting mutual funds.

The FM brought asset management services provided under ULIP at par with mutual funds. Higher tax will reduce the volatility of flows for mutual funds and attract long-term investors. Investors in equity funds now pay a short-term capital gains tax of 10 percent if redeemed within a year. It's bad news for capital markets but will encourage long-term investments in mutual funds.

Mutual funds pay service tax of 12.36 percent while selling securities, which ULIPs do not pay. Now, ULIPs, which distributors prefer to sell over relatively cheaper mutual funds as they offer higher commissions, will become more expensive, deterring investors. The change is also likely to have an adverse impact on ULIPs as it is possible that the additional tax costs will be passed on to the customer.

Popular posts from this blog

up to 8,500% return in 5 years! Investors made a killing in these 30 smallcap stocks

U By Rahul Oberoi, | Updated: Dec 01, 2017, 04.06 PM IST Post a Comment
Efficiency pays in the long run. Among the top smallcap plays on Dalal Street, 30 companies with stable return on equity (RoE) and return on capital employed (RoCE) have surged up to 8,500 per cent over the past five years.

All these companies had a debt-to-equity ratio of less than 1 and have been maintaining RoE and RoCE of over 20 per cent since 2012-13.

Avanti Feeds emerged the chart topper, with an 8,527 per cent gain to Rs 2,596.60 as of November 28 from Rs 30.10 ..

ovember 28 from Rs 30.10 on November 27, 2012. The company’s return on equity for FY17, FY16, FY15, FY14 and FY13 stood at 42.65 per cent, 46.21 per cent, 52.41 per cent, 45.79 per cent and 27.60 per cent, respectively. Avanti also managed to achieve a return on capital employed of over 50 per cent in last four years. Its RoCE stood at 28.59 per cent inRoE measures net income earned for every rupee of shareholder funds, while…

Bio-fuel has top investors powered up

23RD ,JUNE India's fortune-hunters believe their new-found love for biofuel will pay off. India's well-known investors who are known for their Midas touch have spotted an opportunity in bio-fuel, betting big on ethanol, bio-mass and even bio-fuel equipment makers in India and other parts of the globe. Billionaires Rakesh Jhunjhunwala, C Sivasankaran, Vinod Khosla, founder of Sun Microsystems, and Nemish Shah, the media-shy joint partner of Enam Financial Services, are investing in bio-fuel makers quietly, expecting that bio-fuel will have a big play in the coming years as the world looks for a viable alternative to the fast depleting oil reserves. Jhunjhunwala, who is known for his ability to spot a multi-bagger at a very early stage, recently invested in Hyderabad-based bio-fuel firm Nandan Biometrics.He is also a 10 per cent stakeholder in Praj Industries, which is a bio-fuel technology provider…

5 dark-horse picks

Kwadrat/ Kwadrat/
If you are a conservative investor, using the mutual fund route is the best way to invest in stocks. But if you are game for some excitement, you might want to dabble directly in stocks, especially small-cap stocks. Stocks that are smaller in size, in terms of market capitalisation, carry higher risk. The reasons are — one, lower traded volume increases price volatility, two, information is usually scarce on these companies, three, business risk is higher since many of these companies are dependent on a single product and four, governance risk is also higher in these stocks. That said, small-cap stocks have the capacity to deliver far greater returns when compared to large-cap stocks. Sample this: there were 16 stocks with market cap more than ₹50,000 crore in January 2009. These stocks delivered an average return of 138 per cent in the last eight years but 4 out of every 10 stocks in this group delivered negative returns. On the ot…