Fund Statement

Reading a Fund Statement

So you've invested in mutual fund? What is the entry/exit load on it? What is your current net asset value, or NAV? If these seems Greek to you, you clearly haven't been taking a close look at the statement that your fund house mails to you. Much like a bank account statement, this document offers all transaction details carried out within a defined time period. It is also available online and indicates account changes whenever there is a redemption, additional investment or dividend declaration.

Here's look at some of the important details in the mutual fund statement, which should be checked regularly by investors.

Investor's personal details

The name, address and phone number of the investor and joint investors (if any) are mentioned in this section. Ensure that all these details are correct and updated, and if there is any discrepancy, it should be communicated to the broker or fund house.

Adviser Name

This indicates the source through which you have invested. If you have done so through an agent, the latter's name and code will appear on the statement. However, if you have invested directly, these parts should be blank on your account statement.

Bank details

Make sure your bank's name and your account number are accurately mentioned to avoid problems while redeeming units. If you want to change your bank mandate, fill out the slip at the bottom of your account statement and submit it to your fund house or agent.

Folio and account numbers

Most mutual funds offer one folio number and several account numbers in the same folio for all investments under the same unitholder combination. This makes tracking all your investments with the same fund easier. Make sure you keep tabs on the different account numbers within the single folio.

Current cost and value

The cost indicates the amount you invested in a scheme while the current value is the latest market value of your investments as on the date the statements is generated.

PAN details

You must give the correct Permanent Account Number (PAN), irrespective of the amount invested. Check your PAN details mentioned in the account statement and ensure there are no discrepancies.

Transaction summary

This section details the type of transactions you have opted for, such as purchase, systematic investment plan (SIP) and systematic withdrawal plan (SWP). Transactions like dividend payout or reinvestment are also mentioned along with percentage or rupees per unit at which the dividend is reinvested or paid.

Transaction slip

At the bottom of the account statement, there is a transaction-cum-service request slip, which can be used for buying additional units, redeeming and switching units between schemes. The transaction slip can also be used if an investor wants to notify any change in his/her correspondence address and bank details.

The back of the account statement is also worth a careful look. It contains important notes relating to investor services, KYC norms, additional purchase, switch, and the like. A little due diligence and careful monitoring by you can ensure the safety of your investment.

MF Grievance

A  proper redressal system is in place to address the complaints of an MF investor.

Investing in a mutual fund (MF) today is easier than ever before. Now, you could invest not just through the distributor, but also online and without an intermediary. Servicing the MF investor, on the other hand, has always been an issue, though it's being tackled through a series of steps of late. The tardy and unfriendly attitude that characterized the MF industry in its infancy stage has given way to an efficient and personal face. Still, complaints do crop up, such as a missed dividend cheque, issues with a fund's NAV pricing, non-receipt of fact-sheet and annual reports, and so on. If caught on the wrong foot, you can follow the following redressal trail.

The Fund House

Most snags get resolved at the fund house ---- the first step of the redressal ladder --- itself. In case of any clarification or complaint regarding your investment, approach your fund house or its registrar and transfer agent (R&T). Their contact details are there in the account statements or the fact-sheets that funds send to investors. You could also get them from the website of the respective fund house and its transfer agent. The  fund house or registrar will look into the complaint and, more often than not, resolve it then and there.

The Regulator

If, for some reason, the investor is not satisfied with the fund house's response and wants further intervention, the next contact should be the regulator -- Securities and Exchange Board of India (Sebi). A written complaint has to be filled with any of the four zonal offices, detailing the circumstances of the case, along with photocopies of the relevant documents. Complaints can also be filled online on Sebi's website www.sebi.gov.in. On receiving the complaint, Sebi will give a reference number, which will need to be quoted in all future communications with it. Sebi will follow up the case with the fund house. If the fund house does not resolve the complaint with three months of filing it with Sebi, you will have to sound out (Send reminder) the regulator again.

Investor's Association

If Sebi also fails to resolve a complaint, you will have to approach an investors' association. These are independent entities that help investors in grievance cases. You will have to write to one of the associations, attaching photocopies of relevant documents. Some of these entities provide the services for free, while others charge a nominal fee in the range of 200 - 500 INR. These associations take up individual cases too. To start with, the investors' association will do what Sebi does -- hear the investor's side of the story and follow it up with the fund house concerned. If it does not get a satisfactory  answer from the fund house, and it feels there is a case, it might advise the investor to take legal action. It could even help with the case.

Ministry of Corporate Affairs

'Investor Helpline' is a free, dedicated online portal to handle investor grievances administered by different authorities, i.e., the Ministry of Corporate Affairs, Sebi and the Reserve Bank of India, in a focused and sustained manner. It is sponsored by the Investor Education and Protection Fund under the Ministry of Corporate Affairs. Right from filing of the grievances to tracking their status and interaction with the administrator, all the steps have been made online to make it user-friendly.

The Courts

On rare occasions that your problem remains unresolved, the legal system is your last recourse.

Before the MF Plunge

Investments in equities, especially for the long term, are likely to yield the highest returns. However, for many, keeping track of markets and individual stocks is not possible and also not advisable. Especially so as professionally-managed and tightly-regulated mutual funds are available to do the same job. The endeavor here is to highlight some basic steps to consider in building an equity portfolio through mutual funds


Identify financial goals
The process starts with identifying your financial goals. You may be looking to plan for retirement, children's education, a marriage or buying a house. If you have a fair sense of the time frame in which to build the corpus, financial websites can help you plan for the various scenarios, including factoring in possible rates of inflation.


Risk tolerance
Identifying your risk tolerance is important. If you are young and at the start of your career, you can have an equity-oriented portfolio as you can afford to take a risk in anticipation of higher returns. Those approaching retirement or are retired should ideally have low equity exposure.

Selecting a fund house
The next step is to identify fund houses that have a pedigree in the financial services and provide funds with a consistent track record across all categories. A minimum of five years consistent returns could be a pre-requisite.

Invest objective
Familiarize yourself with the investment objective of the shortlisted funds. Identify whether the funds invests across market capitalization or limits itself to large-cap, mid-cap or small-cap stock baskets. Most financial goals are long term and so it is better to invest in diversified funds that have broad mandates. Also consider the benchmark that the fund follows. It will give you a broad sense of whether the fund is tracking a broad index, such as the CNX 500 or the BSE 200.

Shortlisting schemes
You may use performance as a measure to make your final list of schemes. However, also consider consistency in performance over longer tenures, including for three, five and 10 years. Your selected schemes should ideally be those that have consistently beaten their benchmark and compare reasonably with their peers over long periods. You should also be aware that there is no advantage to over diversifying your investments. A maximum  of four or five equity schemes in more than enough.  A fund manager's track record is also a factor. The longer a manager has been with a fund, the better.

Keep track
Monitoring your investments is the next step. Don't fall in love with your funds. Ask your advisory or sign up for periodic updates on your investments. Do not be tempted to make changes in the first six months or even a year. If you have followed the steps outlined above, you will not need to make a short-term change.

Course corrections
As long as your investments are giving you the required rate of return, don't change your chosen funds or add funds, especially based on short-term performance. The only reason you will need to consider making a change would be if your selected scheme is trailing your required rate of return for over a year or even two.

Global Funds

YOUR POCKET GUIDE TO GLOBAL FUNDS

Global funds are schemes that invest at least 65% of their corpus in foreign stocks or overseas mutual funds. These funds invest in various markets, allowing investors to gain from the rise in other emerging and developed markets. Another advantage of going global is that the investor gets to buy a wider range of assets through his fund portfolio. Global funds give you access to asset classes that are not even available in India.

Before you invest in global funds, keep in mind that the risks involved in overseas investments are far more complex than those in domestic markets. These include the country-specific risk, policy risk, as well as the exchange rate risks.

 

Tax Implications:

Though foreign exchange regulations permit resident individuals to invest up to 90 lakh INR abroad in a financial year, they are not entitled to any tax-free luxuries on such investments. These individuals are likely to incur tax liabilities both in India and abroad, resulting in complex implications.

Under the Income Tax Act, 1961, a resident and ordinarily resident of India has to pay tax on his worldwide income. If the transaction involves sale of shares or other assets outside India, the income from these will be taxable as capital gains. The definition of capital gains is the same -- if an asset is held for more that 12 months in the case of shares or units, or 36 months in any other case, the profit on sale of the asset is a long-term capital gain. The profits from any assets held for less than the prescribed limit of 12-36 months is treated as a short-term capital gain.

Capital gains are calculated as the difference between the sale consideration and the cost of acquisition. However, for long-term capital assets, the actual cost is adjusted based on the Cost Inflation Index (CII) between the years of purchase and sale.While the long-term capital gains arising from overseas assets are taxable at the rate of 20.6%, short-term capital gains are taxable at the applicable slab rates prescribed for individuals and range from 10.3 - 30.9%. Besides, any dividend or interest income earned by a resident individual on an overseas investment will be taxable as "income from other sources".

If the investment is made in a property outside India, the rent will be taxable as "income from house property" on an annual basis. As much as 30% of the rent, municipal tax actually paid interest paid on housing loan are allowed as deduction from the gross rent to compute the taxable rent.

These tax provisions in India are in for a big change after the Direct Taxes Code comes into effect from 1 April 2010. Such investment income may also be taxable overseas, that is, in the country where the income has arisen, depending on the tax laws of the country. In case of double taxation, one can resort to the beneficial provisions under the Double Taxation Avoidance Agreement (DTAA) entered into between India and such countries.  However, this will vary depending on the nature of income, tax laws in the country and the provisions of DTAA.

While the rising personal income and consequential increase in wealth, which is supplemented by relaxed foreign exchange regulations, may make it lucrative for individuals to invest overseas, the resultant tax implications should not be overlooked. The overseas income results in a tax implication and an outflow. So, it is advisable to examine the tax implications before you invest abroad.

Know About Your SIP

SIP : Systematic Investment Plan

Five things you ought to know about your SIP

1. Keep sufficient balance in your bank

To start an SIP in a mutual fund, you need to give an ECS mandate or post-dated cheques to the fund house. But that's not the end of it. You need to make sure you have sufficient  funds in your bank account on the date of investment. Funds houses are usually quite lenient in these maters and will overlook one or two instances of an SIP cheque bouncing. But if it happens three times in a row, your SIP will be canceled for good. To restart it, you will have to do the paperwork all over again.

2.Useful of certain asset classes

You can invest through SIPs in practically all asset classes-- equities, debt, gold and even real estate. After all, your home loan EMI is an SIP in real estate. But SIPs work best in volatile asset such as equities. That way you are able to average out your purchase price over the long term. You don't really need to take the SIP route when investing in the debt market where the fluctuations are minimal. Also, one can consider investing systematically in gold, which is another asset class with some volatility and is a good hedge against inflation.

3. Each SIP is an individual investment

Like each EMI of a loan, each installment of your SIP is a separate investment and treated individually while calculating tax and exit loads. If you started an SIP in a equity fund two years ago and withdraw the entire amount today, the SIPs that were made more than 12 months ago will not attract any tax. However the profits from the past 11 SIPs will be liable to 15% short-term capital gains tax because they have not yet completed a full year circle. So, even though you might have started the SIP sever months ago, each installment must complete a year to escape tax net. Also, these 11 installments would also be slapped with an exit load because they are being withdrawn before a year. This also holds true for ELSS funds, wherein each installment has a lock-in period of three years. So after three years of starting an SIP in an ELSS fund, you can withdraw units of only the first SIP. The next month, units of the second SIP become free from the lock-in and so on.

4. Monthly option is best

In the past few years, SIPs have evolved significantly. Apart from monthly and quarterly options, you now have the option to enter the market at fortnightly, weekly even daily intervals. However, a monthly option still works best because of the operational ease it provides. While daily and weekly SIPs even out the fluctuations well, they add to an investor's paper work. Also, out cash flows are monthly and we plan most things on a monthly basis, so it's easier to keep money aside at that interval. The quarterly mode takes too long. By the time the trigger date comes in you might have used all amount.

5. What's the right amount

Some mutual funds allow investors to put in as little as Rs.50 a month through SIPs. That may appear tempting but won't help in wealth creation. Even if your fund churns out good returns and you remain invested for the long term, the small size of the SIP means you won't accumulate a significant amount. Sure, the amount of investment is defined by the investible surplus that an individual has. But don't opt for a small SIP just because it is being offered by a mutual fund. Assess the size of your financial goal and then save accordingly.