Mutual Funds Consultancy

Mutual Funds related FAQs:

Why do people use mutual funds?
Many people purchase mutual funds because they are a convenient and cost effective method of obtaining diversification and professional management. Because mutual funds hold anywhere from a few securities to several thousand, risk is spread out over a number of investments. Additionally, mutual funds generally buy and sell securities in volume, which allows investors to benefit from lower trading, management and research costs. Another advantage that mutual funds offer is that fund performance is subject to frequent reviews by various publications and rating agencies, making it possible for investors to conduct direct comparisons between funds.
What is "net asset value"?
The net asset value (NAV) is the value of the fund's underlying securities. It is calculated at the end of the trading day.
What are typical expenses of a mutual fund?
Stock funds tend to be the most expensive, with annual expenses ranging from 0.2% to 3.0% with most between 1.0% and 1.5%. Small company and international funds tend to be more expensive. Bond fund expenses range from 0.2% to 2.0%, with most around 1.0%. Money market funds tend to be the least expensive, ranging from about 0.2% to 1.0%.
Can mutual fund performance be guaranteed?
No. As many funds state, past performance is no guarantee of future results, and the fund shares are not backed or guaranteed by the FDIC or other government agency. Note that while some funds buy government backed securities, that is not the same as backing the market value of the fund shares.
What is the tax liability on receipt of Income on Mutual Fund Units?
As per Section 10(33) of the Income Tax Act, 1961 ('Act') income received in respect of units of a mutual fund specified under Section 10(23D) is exempt from income tax in India and the mutual funds are subject to pay distribution tax in debt-oriented schemes. Hence all dividends are tax-free in the hands of non-resident investors and no TDS is applicable on the same.
Can NRI's invest in Mutual Funds in India?
Investments by NRI's in Mutual Funds can be made on a repatriable or on a non-repatriable basis, as preferred by the investor. Certain restrictions do exist in some of the host countries of NRI's like U.S., Canada etc. on investment by NRI's in Indian Mutual Funds. These, NRI's will have to check themselves before investing or committing to invest in Indian Mutual Funds.
Repatriable Basis
To invest on a repatriable basis, you must have an NRE or FCNR Bank Account in India. The Reserve Bank of India (RBI) has granted a general permission to Mutual Funds to offer mutual fund schemes on repatriation basis, subject to the following conditions:
1) The mutual fund should comply with the terms and conditions stipulated by SEBI.
2) The amount representing investment should be received by inward remittance through normal banking channels, or by debit to an NRE/FCNR account of the non-resident investor.
3) The net amount representing the dividend / interest and maturity proceeds of units may be remitted through normal banking channels or credited to NRE / FCNR account of the investor, as desired by him subject to payment of applicable tax.
Non-Repatriable Basis
The Reserve Bank of India (RBI) has granted a general permission to Mutual Funds to offer mutual fund schemes on non-repatriation basis, subject to the following conditions:
1) Funds for investment should be provided by debit to NRO account of the NRI investor. Alternatively, funds may be invested by inward remittance or by debit to NRE / FCNR Account.
2) The current income in the form of dividends is allowed to be repatriated.
No permission of Reserve Bank either by the Mutual Fund or the NRI investor is necessary.
Does an NRI need any approvals from the Reserve Bank of India to invest in mutual fund schemes?
No. As an NRI one does not need any specific approval from the RBI for investing or redeeming from Mutual Funds. Only OCB's and FIIs require prior approvals before investing in Mutual Funds.
Can I repatriate my earnings on redemption?
If the investment is made on a repatriation basis, the net income or capital gains (after tax) arising out of investment are eligible for repatriation subject to regulatory guidelines in force at the time of repatriation. If the investment is made on a non-repatriation basis, only the net income, that is, dividend, arising out of investment is eligible for repatriation.
Can I repatriate my initial investment, earnings (capital gains) from redemption and any dividend arising from it?
If the investment is made on a repatriation basis, the net income or capital gains (after tax) arising out of investment is eligible for repatriation subject to regulatory guidelines in force at the time of the repatriation. If the investment is made on a non-repatriation basis, only the net income, that is, dividend, arising out of investment is eligible for repatriation.
What is the tax liability on Redemptions? What is the rate of Tax Deduction at Source for NRI's / PIO's? What is the tax - rate on capital gains for NRI's / PIO's?
Under Section 2(42A) of the Income Tax Act, units of the Scheme held as a capital asset, for a period of More than twelve months immediately preceding the date of transfer, will be treated as a long term capital asset for the computation of capital gains - thus attracting long term capital gains tax rate. In all other cases it would be treated as a short-term capital asset and would attract short-term capital gains tax rate. Hence depending on the period of investments, long term or short capital gains and tax thereon is applicable on redemption's. Though there is currently no long-term capital gain tax liability for redemptions from equity schemes, there is a liability at the time of redeeming from the debt schemes.
Is the indexation benefit available to NRI's?
Yes, in case units are held for more than twelve months i.e. on long-term capital gains.
Is Securities Transaction Tax applicable to NRI investors?
Yes.
Is there any Tax liability on switching from one option to the other?
Yes. On switching from the Growth option to the Dividend option, the investor is liable to TDS at the applicable tax rate.
Can an NRI gift the units of MF's to resident Indians?
Yes. On switching from the Growth option to the Dividend option, the investor is liable to TDS at the applicable tax rate.
How does buying funds directly compare with buying through a broker?
A load fund usually costs the same whether bought directly or through a broker. A no-load fund can be bought directly at no charge; most brokers will charge a commission to buy a no-load fund. Some discount brokers now offer some no-load funds at no transaction fees; normally, they receive a portion of the funds' annual expenses instead. Holding funds in a broker may make it easier to trade from one fund to another, however. Closed-end funds usually need to be traded through a broker, like regular stocks, though some have dividend reinvestment plans.
Are units of MF's chargeable in Wealth Tax?
No. Units issued to investors (including NRI's) etc. will not be treated as assets as defined under section 2(ea) of the Wealth-Tax Act, 1957 and hence will not be liable to wealth-tax.
How can I invest in Indian equity markets? What is the procedure?
Portfolio Investment Scheme: Under this scheme, NRI's can acquire shares/ debentures of Indian companies or units of domestic mutual funds through the stock exchange(s) in India through portfolio investment scheme.
NRI's can also invest in unlisted companies through portfolio investment scheme. The application is to be submitted to Reserve Bank of India through a designated branch of a bank in India in one of the prescribed forms.
Is dividend/interest earned in respect of investment made under the 100% Scheme freely remittable to the NRI's abroad?
Dividend/interest can be remitted freely except in the case of consumer goods industries where the outflow on account of dividend is required to be balanced by export earnings of the company either in the year of declaration of dividend or in the years prior to the declaration of dividend, This requirement is enforced for a period of seven years from the commencement of commercial production.
Can I repatriate my funds? If yes, how?
Investment on repatriation basis: NRI's can make portfolio investment in shares and debentures quoted in any stock exchange in India with full benefits of repatriation of capital invested and income earned on that capital. In the case of shares/ debentures/ bonds acquired by NRI's through stock exchanges under the Portfolio Investment Scheme, transfer can be done through stock exchanges provided the sale is arranged through the same designated branch through which they were purchased. In other cases, applications for necessary permission are required to be made to Reserve Bank of India on form TS4/ TS3.
Am I subjected to paying tax? If yes, how and how much?
Taxes: As regards tax deduction at source/ remittance, seller can repatriate immediately the funds to the extent of the cost of acquisition of investment sold or the actual amount of sale proceeds realized, whichever is less, without production of any objection / tax clearance certificate. In case of long-term capital gains, on the remaining amount capital gains tax would be charged and the balance could be remitted. In case of short-term capital gains the taxes are to be deducted at source by the buyer but NRI's are advised to pay it as advance tax.

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FAQ
			Mutual Funds related FAQs: Why do people use mutual funds? Many people purchase mutual funds because they are a convenient and cost effective method of obtaining diversification and professional management. Because mutual funds hold anywhere from a few securities to several thousand, risk is spread out over a number of investments. Additionally, mutual funds generally buy and sell securities in volume, which allows investors to benefit from lower trading, management and research costs. Another advantage that mutual funds offer is that fund performance is subject to frequent reviews by various publications and rating agencies, making it possible for investors to conduct direct comparisons between funds. What is "net asset value"? The net asset value (NAV) is the value of the fund's underlying securities. It is calculated at the end of the trading day. What are typical expenses of a mutual fund? Stock funds tend to be the most expensive, with annual expenses ranging from 0.2% to 3.0% with most between 1.0% and 1.5%. Small company and international funds tend to be more expensive. Bond fund expenses range from 0.2% to 2.0%, with most around 1.0%. Money market funds tend to be the least expensive, ranging from about 0.2% to 1.0%. Can mutual fund performance be guaranteed? No. As many funds state, past performance is no guarantee of future results, and the fund shares are not backed or guaranteed by the FDIC or other government agency. Note that while some funds buy government backed securities, that is not the same as backing the market value of the fund shares. What is the tax liability on receipt of Income on Mutual Fund Units? As per Section 10(33) of the Income Tax Act, 1961 ('Act') income received in respect of units of a mutual fund specified under Section 10(23D) is exempt from income tax in India and the mutual funds are subject to pay distribution tax in debt-oriented schemes. Hence all dividends are tax-free in the hands of non-resident investors and no TDS is applicable on the same. Can NRI's invest in Mutual Funds in India? Investments by NRI's in Mutual Funds can be made on a repatriable or on a non-repatriable basis, as preferred by the investor. Certain restrictions do exist in some of the host countries of NRI's like U.S., Canada etc. on investment by NRI's in Indian Mutual Funds. These, NRI's will have to check themselves before investing or committing to invest in Indian Mutual Funds. Repatriable Basis To invest on a repatriable basis, you must have an NRE or FCNR Bank Account in India. The Reserve Bank of India (RBI) has granted a general permission to Mutual Funds to offer mutual fund schemes on repatriation basis, subject to the following conditions: 1) The mutual fund should comply with the terms and conditions stipulated by SEBI. 2) The amount representing investment should be received by inward remittance through normal banking channels, or by debit to an NRE/FCNR account of the non-resident investor. 3) The net amount representing the dividend / interest and maturity proceeds of units may be remitted through normal banking channels or credited to NRE / FCNR account of the investor, as desired by him subject to payment of applicable tax. Non-Repatriable Basis The Reserve Bank of India (RBI) has granted a general permission to Mutual Funds to offer mutual fund schemes on non-repatriation basis, subject to the following conditions: 1) Funds for investment should be provided by debit to NRO account of the NRI investor. Alternatively, funds may be invested by inward remittance or by debit to NRE / FCNR Account. 2) The current income in the form of dividends is allowed to be repatriated. No permission of Reserve Bank either by the Mutual Fund or the NRI investor is necessary. Does an NRI need any approvals from the Reserve Bank of India to invest in mutual fund schemes? No. As an NRI one does not need any specific approval from the RBI for investing or redeeming from Mutual Funds. Only OCB's and FIIs require prior approvals before investing in Mutual Funds. Can I repatriate my earnings on redemption? If the investment is made on a repatriation basis, the net income or capital gains (after tax) arising out of investment are eligible for repatriation subject to regulatory guidelines in force at the time of repatriation. If the investment is made on a non-repatriation basis, only the net income, that is, dividend, arising out of investment is eligible for repatriation. Can I repatriate my initial investment, earnings (capital gains) from redemption and any dividend arising from it? If the investment is made on a repatriation basis, the net income or capital gains (after tax) arising out of investment is eligible for repatriation subject to regulatory guidelines in force at the time of the repatriation. If the investment is made on a non-repatriation basis, only the net income, that is, dividend, arising out of investment is eligible for repatriation. What is the tax liability on Redemptions? What is the rate of Tax Deduction at Source for NRI's / PIO's? What is the tax - rate on capital gains for NRI's / PIO's? Under Section 2(42A) of the Income Tax Act, units of the Scheme held as a capital asset, for a period of More than twelve months immediately preceding the date of transfer, will be treated as a long term capital asset for the computation of capital gains - thus attracting long term capital gains tax rate. In all other cases it would be treated as a short-term capital asset and would attract short-term capital gains tax rate. Hence depending on the period of investments, long term or short capital gains and tax thereon is applicable on redemption's. Though there is currently no long-term capital gain tax liability for redemptions from equity schemes, there is a liability at the time of redeeming from the debt schemes. Is the indexation benefit available to NRI's? Yes, in case units are held for more than twelve months i.e. on long-term capital gains. Is Securities Transaction Tax applicable to NRI investors? Yes. Is there any Tax liability on switching from one option to the other? Yes. On switching from the Growth option to the Dividend option, the investor is liable to TDS at the applicable tax rate. Can an NRI gift the units of MF's to resident Indians? Yes. On switching from the Growth option to the Dividend option, the investor is liable to TDS at the applicable tax rate. How does buying funds directly compare with buying through a broker? A load fund usually costs the same whether bought directly or through a broker. A no-load fund can be bought directly at no charge; most brokers will charge a commission to buy a no-load fund. Some discount brokers now offer some no-load funds at no transaction fees; normally, they receive a portion of the funds' annual expenses instead. Holding funds in a broker may make it easier to trade from one fund to another, however. Closed-end funds usually need to be traded through a broker, like regular stocks, though some have dividend reinvestment plans. Are units of MF's chargeable in Wealth Tax? No. Units issued to investors (including NRI's) etc. will not be treated as assets as defined under section 2(ea) of the Wealth-Tax Act, 1957 and hence will not be liable to wealth-tax. How can I invest in Indian equity markets? What is the procedure? Portfolio Investment Scheme: Under this scheme, NRI's can acquire shares/ debentures of Indian companies or units of domestic mutual funds through the stock exchange(s) in India through portfolio investment scheme. NRI's can also invest in unlisted companies through portfolio investment scheme. The application is to be submitted to Reserve Bank of India through a designated branch of a bank in India in one of the prescribed forms. Is dividend/interest earned in respect of investment made under the 100% Scheme freely remittable to the NRI's abroad? Dividend/interest can be remitted freely except in the case of consumer goods industries where the outflow on account of dividend is required to be balanced by export earnings of the company either in the year of declaration of dividend or in the years prior to the declaration of dividend, This requirement is enforced for a period of seven years from the commencement of commercial production. Can I repatriate my funds? If yes, how? Investment on repatriation basis: NRI's can make portfolio investment in shares and debentures quoted in any stock exchange in India with full benefits of repatriation of capital invested and income earned on that capital. In the case of shares/ debentures/ bonds acquired by NRI's through stock exchanges under the Portfolio Investment Scheme, transfer can be done through stock exchanges provided the sale is arranged through the same designated branch through which they were purchased. In other cases, applications for necessary permission are required to be made to Reserve Bank of India on form TS4/ TS3. Am I subjected to paying tax? If yes, how and how much? Taxes: As regards tax deduction at source/ remittance, seller can repatriate immediately the funds to the extent of the cost of acquisition of investment sold or the actual amount of sale proceeds realized, whichever is less, without production of any objection / tax clearance certificate. In case of long-term capital gains, on the remaining amount capital gains tax would be charged and the balance could be remitted. In case of short-term capital gains the taxes are to be deducted at source by the buyer but NRI's are advised to pay it as advance tax.



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