How safe is it to Invest in MNC Funds now?

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How safe is it to Invest in MNC Funds at Present?





While these thematic funds have given good returns in the past, investors need to be aware of the risks they carry

 

These companies have weathered the competition in many markets globally and have gained from the experience. Their business models help mitigate the risk.

Most MNC companies offer goods and services of a high quality and their products are technologically superior as they have access to their parents' know-how. They enjoy a good brand image. Many of them are led by expats, who have worked in several countries and bring a lot of experience to the job. All these factors give these companies a sustainable competitive advantage that translates into high market shares.

While catering to the domestic market, MNCs develop an ecosystem of suppliers and vendors. Then, taking advantage of cost efficiencies, they foray into export markets. This gives a multi-year fillip to their earnings.

MNCs generally adhere to high standards of corporate governance. I have not come across instances of aggressive accounting among these stocks

 Since many of them are cash cows, they tend to pay dividends regularly . Their books are usually not laden with debt.

MNC funds have the ability to give sound risk-adjusted returns. The beta of UTI MNC Fund is a relatively low 4.56, while its standard deviation is only 11 percent (beta and SD are measures of risk).

These funds also tend to weather downturns well.

DISADVANTAGES AND RISKS

A key handicap that managers of MNC funds have to deal with is the limited universe of stocks available to them. As the economy recovers, the banking and financial services sector is expected to do well, but very few MNC stocks are available within this space.

The paucity of listed MNC stocks also gives rise to the risk of stock and sector concentration in these funds.

MNC fund investors will also have to contend with the valuation risk. Being cash rich and belonging to sectors like FMCG, most MNC stocks are currently trading at high valuations. Invest in these only through SIPs and with an investment horizon of at least five years.

Duplication is another issue.

The diversified equity funds in your portfolio may already have many of these stocks.

Investing separately in MNC funds may result in duplication.

The issue of high royalty payment to parents also crops up from time to time in the case of these stocks. High royalty payments could affect the earnings of these companies in the short term, though the markets won't pay much attention to the issue if their sales volumes and exports pick up.

What should you do?

MNC funds are better suited to volatile and depressed markets. "In rising markets, you should bet more on growth-oriented funds, points out that these funds have the potential to offer sound risk-adjusted returns over a five-year horizon. Remember, these are thematic funds that are riskier than diversified funds. If you invest in them, limit the exposure to 10-15 percent of your equity portfolio.

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

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Best Performing Mutual Funds

1. Largecap Funds Invest Online
1. DSP BlackRock Top 100 Fund
2. ICICI Prudential Focused Blue Chip Fund
3. Franklin India Bluechip
4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

1. ICICI Prudential Dynamic Plan
2. HDFC Top 200 Fund
3. UTI Dividend Yield Fund
4. Birla Sun Life Front Line Equity Fund
5. Franklin India Prima

C. Mid and SmallCap Funds Invest Online

1. Reliance Equity Opportunities Fund
2. DSP BlackRock Small & Midcap Fund
3. Sundaram Select Midcap
4. IDFC Premier Equity Fund
5. Birla Sun Life Dividend Yield Plus
6. SBI Emerging Businesses Fund
7. HDFC Mid-Cap Opportunities Fund
8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds Invest Online

1. DSP BlackRock MicroCap Fund
2. Franklin India Smaller Companies

E. Sector Funds Invest Online

1. Reliance Banking Fund
2. Reliance Banking Fund
3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

3. DSP BlackRock Tax Saver Fund
4. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

1. Relaince Gold Savings Fund
2. ICICI Prudential Regular Gold Savings Fund
3. HDFC Gold Fund
4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF

REITs are good portfolio diversifiers

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REITs are good portfolio diversifiers

Want to participate in the real estate boom without the hassles of complicated documentation? Real Estate and Infrastructure Investment Trusts, or Reits, might be a good option. With the Securities and Exchange Board of India (Sebi) clearing the deck for launch of Reits on Sunday, investors will have another option – besides direct purchase of property or direct stocks of real estate companies – to participate to the sector's fortunes. However, the market regular has kept a higher threshold limit of ₹ 2 lakh for investment in Reits, much like the limit in the BSE SME stocks, thereby making it a tad more difficult for retail investors.

Reits would be safer for individual investors who would otherwise invest on their own in some property or land parcel. Investing in Reits would be passive investing in real estate market. Also, the minimum threshold is much lower than investing in any property, which can cost anywhere above ₹ 40- 45 lakh even in city suburbs

 

There are several other safeguards as well. Not less than 80 per cent of the value of the Reit assets shall be in completed and revenue- generating properties – a good move because it ensures that investors enter an instrument that is already generating revenues and not something that will only generate revenues in the future. This will bring down the risk because entire investment in under- construction properties that promise the moon to investors can hurt badly, if the construction gets stuck due to litigation or other issues. Similarly, Reits cannot invest more than 60 per cent of the value of assets in two projects.

Besides these checks and balances – high threshold limit and controls over investment – Reits will give an added advantage of dividend distribution on an annual basis and that too, 90 per cent of distributable post- tax income. At present, dividends would be subject to the dividend distribution tax ( DDT) at 16.995 per cent. Dividend subject to DDT is exempt from tax in the hands of the investors.

The yield, as a result, will be 8- 9 per cent. Add to that, capital appreciation and the total annualised returns may come to 14- 15 per cent.  Though post- tax returns depend on the overall yield, they will certainly be higher than fixed deposits by around three per cent. The liquidity may also not be an issue, according to Rahul Rai, head - real estate investment business at ICICI Prudential, because they will be listed at the stock exchanges. Reits will be riskier than debt products because the underlying security is real estate, which can take a hit when economic conditions aren't very suitable since the exposure will only be in commercial properties. The long- term and short- term capital rates of taxation are unclear. However, the taxation of Reits may have some similarity to that for listed equities, with long- term capital gains on transfer of Reits being exempt ( provided it has been subject to STT), and short- term capital gains being subject to a 15 per cent tax, plus applicable surcharge and cess.

However, Reits units to qualify as a long- term capital asset, they would need to be held for a period of three years

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

Leave a missed Call on 94 8300 8300

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OR

You can write back to us at

PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

---------------------------------------------

Best Performing Mutual Funds

1. Largecap Funds Invest Online
1. DSP BlackRock Top 100 Fund
2. ICICI Prudential Focused Blue Chip Fund
3. Franklin India Bluechip
4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

1. ICICI Prudential Dynamic Plan
2. HDFC Top 200 Fund
3. UTI Dividend Yield Fund
4. Birla Sun Life Front Line Equity Fund
5. Franklin India Prima

C. Mid and SmallCap Funds Invest Online

1. Reliance Equity Opportunities Fund
2. DSP BlackRock Small & Midcap Fund
3. Sundaram Select Midcap
4. IDFC Premier Equity Fund
5. Birla Sun Life Dividend Yield Plus
6. SBI Emerging Businesses Fund
7. HDFC Mid-Cap Opportunities Fund
8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds Invest Online

1. DSP BlackRock MicroCap Fund
2. Franklin India Smaller Companies

E. Sector Funds Invest Online

1. Reliance Banking Fund
2. Reliance Banking Fund
3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

3. DSP BlackRock Tax Saver Fund
4. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

1. Relaince Gold Savings Fund
2. ICICI Prudential Regular Gold Savings Fund
3. HDFC Gold Fund
4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF

Debt Funds - Increase in Long Term Capital Gain Tax

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Debt Funds - Hike in long-term capital gains





Hike in long-term capital gains, tax on non-equity funds to 20 percent and extending the holding period to three years will be a damper for debt funds

 

THE Budget comes as a mixed bag of blessings and disappointments for mutual fund investors. While the increase in tax exemption limit under Section 80C of the Income Tax Act will benefit equity fund investors, the changes in tax structure on debt funds may prove to be a drag on their finances. Here's how the maiden Budget presented by Finance Minister Arun Jaitley will affect the mutual fund investors.
DEBT FUNDS The individuals who invested in short-term debt funds and fixed maturity plans (FMPs) to earn better post-tax returns will have to pay more taxes now. The finance minister has proposed a hike in the long-term capital gains tax on debt mutual funds from 10 percent to 20 percent and has extended the holding period to 36 months from 12 months. Experts believe even gold fund investors will be affected by the proposal.

 

People in the higher tax bracket, who preferred mutual funds because of the 30 percent tax implication on the interest earned from bank fixed deposits, will be the worst hit. This makes investments in debt schemes, including FMPs, for less than 36 months, unattractive. The changes proposed in dividend distribution taxes (DDT) would also hurt debt investors.

The DDT was on the net dividend distributed. Now it will be based on the gross dividend distributed. She says investors will be taxed higher at 33.99 percent (including surcharge and cess) from 25.36 percent earlier. Investors should not, however, give up on debt funds entirely because of the new tax proposal.

Due to high inflation, even if you invest in debt funds with a three-year horizon, using the indexation method, your post-tax returns could be higher than those offered by bank fixed deposits.

Some experts feel investors should take a look at arbitrage funds as they can offer better post-tax returns. Arbitrage funds, as the name suggests, look for an arbitrage opportunity among different markets. They are treated as equity funds for taxation purposes, that is, investments held for over one year will not attract taxes. Investors with no risk appetite and an investment horizon between one and three years can consider investing in arbitrage funds.

ELSS The Budget proposal to increase the investment limit under Section 80C is good news for fans of tax-saving mutual fund schemes. The finance minister has raised the exemption limit from `1 lakh to `1.5 lakh under the Section, thereby , enhancing the tax-saving ability of small investors.

Effectively, it means that you can now enjoy a further `50,000 deduction on your total taxable income if you invest an equivalent amount in eligible Section 80C instruments. Individuals earning up to `4 lakh and making an investment of `1.5 lakh under Section 80C will be out of the tax net. The earlier limit was considered too low for investors to actually make optimum use of the available options.

For most individuals, the mandatory contributions towards Provident Fund and premiums towards life insurance policies ate up a chunk of the `1 lakh limit. Earlier, many investors had no reason to save further. However, the revised limit now provides more headroom for them to consider good investment avenues. Experts insist that the revised limit should be used to allocate more towards equities. your compulsory savings towards PF and insurance, investors should now make use of this enhanced limit to take exposure to a different asset class, such as equities."

A tax-saving equity fund or equity-linked savings scheme (ELSS), which falls under the Section 80C umbrella, is the best option to deploy the surplus savings. Investors should make the most of the additional investments of `50,000 allowed under Section 80C by picking up the right schemes. Not only will it help in saving tax, but also provide more scope for wealth creation over the long term. Besides, with a lock-in period of just three years, these products come with a shorter maturity period than most traditional savings instruments, including the Public Provident Fund, National Savings Certificates and tax-saving FDs. Says Rajesh Kothari, managing director, It is better to invest in equity for the long term compared with fixed income, both from the perspective of liquidity and tax saving.

RGESS Apart from ELSS, first-time equity investors looking to save taxes, in addition to Section 80C, can consider investing in the Rajiv Gandhi Equity Savings Scheme (RGESS). If you exhaust the `1.5 lakh limit, you can claim a further deduction of `25,000 on your taxable income by investing in it. Many investment experts were expecting the new government to give it a quiet burial, but nothing of the sort happened. RGESS continues to be intact and first-time investors can continue to invest and claim tax benefits. Those with a gross annual income of `12 lakh or less can invest up to `50,000 under Section 80CCG in the scheme every year, and claim tax benefits for a period of three years.

Investors have the option of buying stocks from the BSE-100, NSE CNX 100, Maharatnas or Navratnas or ETFs specified under the scheme. Experts say investors must avail of the entire `1.5 lakh limit under Section 80C and opt for ELSS if they want equity exposure. If you are inclined to save more tax, consider opting for RGESS, preferably through designated mutual funds and not through direct investment in shares.

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

Leave a missed Call on 94 8300 8300

Leave your comment with mail ID and we will answer them

OR

You can write back to us at

PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

---------------------------------------------

Best Performing Mutual Funds

1. Largecap Funds Invest Online
1. DSP BlackRock Top 100 Fund
2. ICICI Prudential Focused Blue Chip Fund
3. Franklin India Bluechip
4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

1. ICICI Prudential Dynamic Plan
2. HDFC Top 200 Fund
3. UTI Dividend Yield Fund
4. Birla Sun Life Front Line Equity Fund
5. Franklin India Prima

C. Mid and SmallCap Funds Invest Online

1. Reliance Equity Opportunities Fund
2. DSP BlackRock Small & Midcap Fund
3. Sundaram Select Midcap
4. IDFC Premier Equity Fund
5. Birla Sun Life Dividend Yield Plus
6. SBI Emerging Businesses Fund
7. HDFC Mid-Cap Opportunities Fund
8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds Invest Online

1. DSP BlackRock MicroCap Fund
2. Franklin India Smaller Companies

E. Sector Funds Invest Online

1. Reliance Banking Fund
2. Reliance Banking Fund
3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

3. DSP BlackRock Tax Saver Fund
4. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

1. Relaince Gold Savings Fund
2. ICICI Prudential Regular Gold Savings Fund
3. HDFC Gold Fund
4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF