The date on which the fund started operations is provided by the fund's start date. Date of the initiation of operations of the fund.
Income / Debt Funds aim to create a relatively regular and steady income stream for their investors by investing in securities of fixed income such as shares, corporate debentures, etc.
A mutual fund that seeks primarily current income rather than capital growth. It will tend to invest in stocks and bonds that usually pay high interest and dividends.
A mutual fund that invests in a portfolio of shares that matches a well-known stock market index's constituents identically. Therefore in the index itself changes in the value of the fund mirror. A fund specializing in buying securities that match or represent a particular index. For instance, the BSE 30 index is a fund that aims to mimic the BSE Sensex returns.
Indexation is the process of adjusting the purchase price of assets such as Gold, Real Estate and Debt Mutual Funds to reduce the impact of inflation while calculating the return on these investments. Inflation is the gradual increase in goods and services price levels over time, without any real increase in the value of goods and services. For example, a chocolate bar that costs ' 50 today may cost ' 60 next year, although there is no change in the chocolate bar's weight or quality.
Here we will clarify the indexation of Debt Mutual Funds as the indexation gain applies to Debt Mutual Fund investments held for more than three years. After 3 years, once you sell your Debt Mutual Fund portfolio, you will pay a 20 percent long-term capital gain tax after an indexing incentive.Capital gain is measured as the difference in your investment's purchase price and selling price.
Suppose, in August 2015, you invested ' 100,000 in an ABC debt scheme at a NAV of ' 10 three years ago. In return for your investment, you received 10,000 units of ABC scheme. Let's assume the scheme's current NAV is ' 20 and in Sept. 2018 you are selling all the 10,000 units at this NAV.In this case, the capital gain would be the difference between the NAV you sold to and the NAV you invested back 3 years, compounded by the number of units sold.
Your capital gain would be = 10,000 units * ` 10 (i.e. ` 20 – ` 10) = ` 100,000
Now you have to pay a 20 percent LTCG (Long-Term Capital Gains Tax) on all Debt Mutual Fund holdings kept in compliance with current regulations for more than three years.
But when indexing is applied to your capital gain, it will upwardly adjust your investment's purchase price so that Aug. 2015 purchase NAV reflects the inflationary impact over the three-year period. If the acquisition NAV is adjusted upwards, the net capital gain and therefore the relevant tax will be reduced.
Inflation-adjusted cost price = Actual cost price X CII of sale year
CII of purchase year
The CII or Cost Inflation Index is a number that the finance ministry publishes and is used to calculate inflation. The CII is 280 for 2018-19 and the CII is 254 for 2015-16.
The adjusted acquisition cost of inflation would therefore be = 100,000 * (280/254) = ' 110,236
Your long-term capital gain post index would be an adjusted purchase price difference in selling price and inflation = ' 200,000 – ' 110,236 = ' 89,764
So you're going to pay 20% LTCG on ' 89,764 and not on ' 100,000 now.
Indexing results in lower debt tax payment Mutual Fund portfolios as opposed to traditional fixed income items such as bank FDs. Therefore, debt funds are more tax-efficient than similar-return investments.
Indexation provides investors with an ability to monitor their inflation-adjusted returns. It is a provision in the Indian Income Tax Act that allows investors to use inflation as a means of reducing their tax liability from income generated by debt mutual funds and bonds. If such investments are kept for more than 12 months, the indexing profit applies. The same does not apply to bank deposits (FDs) and other small savings where interest earned is taxed at 10%, 20% and 30% according to the applicable marginal tax slabs.
Inflation is the rate at which the overall price level for goods and services is rising and the purchasing power of currency is falling as a result.
Such investments are made by entities like insurance companies, depository banks, pension funds, investment firms and endowment funds.
The average monthly limit on borrowed money paid (or earned if you're a creditor). Expressed as a percentage of the borrowed amount.
A bond's price is closely related to the market's prevailing interest rate. Because bonds are issued with a fixed coupon or interest rate promise, their attractiveness depends on the interest rate available on similar risk profile bonds.Suppose an electricity company, Pvt Energy Grid. Ltd. issues 10 percent coupon bonds and INR 1000 face value. This implies that Energy Grid will pay its bondholders 10 percent or INR 100 each year as a coupon payment.
Suppose the market interest rate for similar-risk securities is 12 percent one year ago. This can happen because the key rate at which RBI lends to other banks has been increased. Now the new bonds look at 12 times more appealing than the old bonds. Therefore, the price of the earlier 10 percent coupon bonds would fall below the INR 1000 face value. If interest rates on similar types of bonds were to fall to 8 percent, then the 10 percent coupon bonds issued by Energy Grid would look more attractive than similar risk bond options available on the market. This will raise the price of these bonds and the Energy Grid bonds will begin trading above par i.e. they will sell on the market for more than INR 1000.
As you can see, there is an inverse relation between bond prices and interest rates. As interest rates rise, bond prices will fall, and bond prices will rise as interest rates decline. Interest rate risk relates to this change in bond prices due to interest rate movement. Interest rate risk is the most severe debt-related threat. A bond investor faces interest rate risk because with interest rate fluctuations, the value of his / her bond holding can shift.
The more prone the fund is to changes in interest rates, calculated by the average effective period the longer the life of a fund. The relationship of different durations between funds is straightforward:
A fund with a 10-year duration is twice as volatile as a five-year fund. Duration also indicates how the NAV of a fund can adjust as interest rates rise.
If interest rates rise by one percentage point or gain 5 percent if interest rates dropped by one percentage point, a fund with a five-year period would be expected to lose 5 percent from its NAV.
A mutual fund that invests in 5- to 10-year maturity securities.
Mutual fund schemes investing in foreign countries.
The investment target is the most important aspect of a Mutual Fund strategy which specifies the financial goal the scheme aims to accomplish and describes the level of risk it is likely to assume when attempting to achieve that goal. Hence, a Mutual Fund scheme's investment goal allows investors to determine,
The investment objective of the scheme helps investors to decide whether or not the scheme is appropriate for their portfolio. In short, a scheme's investment goal attracts like-minded investors who share a common investment goal and have similar preferences in the risk and time horizon.
The type of securities held in the portfolio of a scheme is determined by the scheme's investment goal. The goal could be capital appreciation over the generation of long-term or regular income or capital protection or something else. The fund manager must pursue an investing style in accordance with the stated investment goal of the scheme.
For example, a well-diversified equity folio's investment objective can read as follows:
ABC Fund's investment target is to provide capital growth plus regular dividend through a diversified portfolio of debt, fixed income securities, and money market tools.
As evidenced by the investment goal, ABC Fund will invest in large, mid-cap and small-cap stocks to diversify. As this fund's target is capital growth along with regular income, the fund will invest in a mix of stocks and fixed income securities such as bonds and money market instruments such as commercial papers, t-bills, etc. Such a goal would also require investors to be prepared for a long holding period, as investing in equities requires at least a five-year term, especially in the small and mid-cap segment. The scheme is likely to carry moderate to high risk as it will invest mainly in capitalization-wide equities, i.e. big, medium and small caps.
Without prior approval by the trustees, a Mutual Fund can not change the investment objective of any of its scheme and inform existing investors about the same. Investors are given the option to leave the scheme within a specified period without any charges before an adjustment can be made to the investment goal of the scheme.
A strategy used to build a portfolio of investments to achieve the desired target.
The annual percentage return that is known to be the ratio of annual net profit (actual or estimated) to capital value for a given price in an asset. Therefore, it is a measure of the view of an investor on the opportunities and risks associated with that investment. The better the outlook and the lower the risks, the lower the expected return and the higher the capital value.