In 2007 DBS Chola Mutual offered Equity Fund(s) to investors. This was their website. Content is from the site's 2007 archived pages. Brian Nelson (aka Mr. Princess) provided technical support for this archive project. He is best known for his huge success in the early days of the internet in capitalizing on Disney's princess films to market princess dresses online using state of the art content and product management systems. He was assisted by Marg Woo, who researched the historic content displayed below.
Equity Funds invest mainly in stocks of companies. They offer a long-term option for investors to achieve their wealth-creation goals. Because of their growth potential, equity funds are also referred to as Growth Funds. Although in the short run, however, equity funds can be risky. Thus, they are for investors who can tolerate short-term volatility while investing for long-term gains.
|The benefits of investing through a mutual fund|
Mutual funds allow you to invest small sums. For instance, if you want to buy a portfolio of blue chips of modest size, you should at least have a few lakhs of rupees. A mutual fund gives you the same portfolio for meager investment of Rs.1,000-5,000. A mutual fund can do that because it collects money from many people and it has a large corpus.
The major advantage of investing in a mutual fund is that you get a professional money manager to manage your investments for a small fee. You can leave the investment decisions to him and only have to monitor the performance of the fund at regular intervals.
Considered the essential tool in risk management, mutual funds make it possible for even small investors to diversify their portfolio. A mutual fund can effectively diversify its portfolio because of the large corpus. However, a small investor cannot have a well-diversified portfolio because it calls for large investment. For example, a modest portfolio of 10 bluechip stocks calls for a few a few thousands.
Mutual funds offer tailor-made solutions like systematic investment plans and systematic withdrawal plans to investors, which is very convenient to investors. Investors also do not have to worry about investment decisions, they do not have to deal with brokerage or depository, etc. for buying or selling of securities. Mutual funds also offer specialized schemes like retirement plans, children’s plans, industry specific schemes, etc. to suit personal preference of investors. These schemes also help small investors with asset allocation of their corpus. It also saves a lot of paper work.
A small investor will find that the mutual fund route is a cost-effective method (the AMC fee is normally 2.5%) and it also saves a lot of transaction cost as mutual funds get concession from brokerages. Also, the investor gets the service of a financial professional for a very small fee. If he were to seek a financial advisor's help directly, he will end up paying significantly more for investment advice. Also, he will need to have a sizeable corpus to offer for investment management to be eligible for an investment adviser’s services.
You can liquidate your investments within 3 to 5 working days (mutual funds dispatch redemption cheques speedily and also offer direct credit facility into your bank account i.e. Electronic Clearing Services).
You do not have to pay any taxes on dividends issued by mutual funds. You also have the advantage of capital gains taxation. Tax-saving schemes and pension schemes give you the added advantage of benefits under section 88.
Mutual funds offer daily NAVs of schemes, which help you to monitor your investments on a regular basis. They also send quarterly newsletters, which give details of the portfolio, performance of schemes against various benchmarks, etc. They are also well regulated and Sebi monitors their actions closely.
|Selecting a Mutual Fund||
An aside: When I retired I decided I would look into mutual funds for my retirement package monies. I decided to visit my local Fidelity office in Philadelphia. I received the whole spiel from the young broker sitting behind a piece of stunning modern Italian furniture. (I asked about the desk which is why I know it's from an Italian designer.) No ordinary business desk for this mutual funds' manager. As he taked about Fidelity Funds covering all asset classes of mutual funds, from domestic equity to specialized sectors, so I could find the mix of funds that would help me to achieve my strategic investment goals, blah blah...all I could think of was "where did he buy this desk?" I perked up when he started to list the disclaimers that Past performance is no guarantee of future results. And then the You could lose money by investing in a money market fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Fidelity Investments and its affiliates, the fund’s sponsor, have no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.. After thanking him for his time I said I wanted to think about it. I went home and did an online search for Italian furniture stores. Wow, a local store called room service 360° was an authorized dealer of the most respected Italian furniture designers and manufacturers. Their spiel was: room service 360° is uniquely positioned to offer the most complete, most comprehensive and most exclusive collections of contemporary furniture available on the market today. I decided to take a drive to their showroom and eneded up "investing" some of my monies in a new executive office desk for my at-home office where I decided I would do my own investing in mutual funds etc.
|Purchasing / Selling Mutual Funds||
|Purchasing mutual funds
Selling mutual funds
|Income from Mutual Funds||
|Mutual funds distribute their income as dividend. An investor has the option of receiving the dividend or opting for reinvestment of the dividend. Another choice before him is the growth or cumulative option. In this case, there is no dividend declared. The appreciation in the corpus is reflected in growth in the value of the NAV.
The only difference between the dividend reinvestment option and the growth option is that in case of the former, the investor gets more units depending on the dividend declared and the NAV of the scheme on date of declaration of the dividend while in case of the latter, there is no change in the number of units but the NAV value increases with increase in market value of the scheme’s investments.
Deciding between the dividend reinvestment option and the growth option is mainly on account of tax*.
In the case of equity mutual funds, if the investor holds on to his investment for more than a year, capital gain earned on sale of the units is termed as long-term capital gain, which is completely tax-free. Also, dividends declared by equity mutual funds are completely tax-free. Hence, deciding between dividend and growth in this case makes no difference. However, if the equity mutual fund is held for less than one year, capital gains on sale of the units are termed as short-term capital gains and are taxable at the rate of 10%. In this case, it makes more sense to opt for dividend, which is tax-free.
In the case of debt mutual funds, if the investor holds on to his investment for more than a year, capital gain earned on sale of the units is termed as long-term capital gain, which is taxable at 10% without indexation or 20% with indexation. Dividends declared by debt mutual funds attract a dividend distribution tax of 14.03% in case of individual investors and 22.44% in case of corporate investors. In this case, if the investor needs liquidity, he can opt for the dividend payout option. However, if he is looking at capital appreciation, it makes sense to opt for the growth option.
Speedy investment, redemption and income receipts
Thanks to the Electronic Clearing Services (ECS), a mutual fund investor now has the option of automatic credit of dividends and redemptions into his bank account. This saves a lot of paperwork, for both the investor and the fund.
* tax information has been provided for Financial Year 2004-05
|Tax Implications on Mutual Fund Investing||
Though an investor doesn’t have to pay tax on dividend, he pays it indirectly. This is because the government has levied dividend distribution tax of 14.03% for individual mutual fund investors and 22.44% for corporate mutual fund investors. This tax is paid by the mutual fund directly to the government before making the dividend payout.
If an investor holds on to his mutual fund investment for more than one year, it is considered to be a long-term capital asset and vice versa. Sale of a long-term capital asset attracts long-term capital gains or losses and sale of a short-term capital asset attracts short-term capital gains or losses. Long-term capital gain on sale of your mutual fund investment attracts tax at 20% with indexation benefit or 10% without indexation benefit. Indexation is simply using the cost inflation index tables published by the government to increase your investment cost to the extent of inflation. Short-term capital gain is taxed at the tax rate applicable to your total income. While long-term capital losses can only be set off against long-term capital gains, short-term capital losses can be set off against, both, short-term capital gains as well as long-term capital gains. There is not securities transaction tax on debt funds.
Dividends received from equity schemes of mutual funds (i.e. schemes with equity exposure of more than 65%) are completely tax-free. Neither does the mutual fund have to pay dividend distribution tax nor does the investor have to pay income tax.
Long-term capital gain is completely tax-free in case of investment in equity mutual funds. Securities transaction tax of 0.25% is being levied on all redemptions (including switch outs) in equity mutual funds. Short-term capital gains are taxable at 10%. Since long-term capital gain is tax-free, long-term capital loss will not be available for set off against capital gain. Short-term capital loss will, however, be available for set-off against short-term capital gain.
|The DBS Chola Tax Saver Fund, is launched as an Equity Linked Tax Savings Scheme under Section 80C(2)(xiii) of Income Tax Act 1961. Thus, individuals and HUFs will be entitled to deduction from their Gross Total Income as provided under clause (xiii) of section 80C(2) of the Income Tax Act, 1961 for subscription to any units not exceeding Rs. 100,000/ - in a year, depending upon the gross total income of the assessee. The deduction is available only if the investment is made out of income chargeable to tax.|
|Tracking mutual funds’ performance||
You can assess the performance of your mutual fund investment by computing appreciation in the NAV of the scheme over different periods of time on a stand-alone basis (one month, three months, six months, one year, three years, since inception), against relevant benchmarks and against average returns offered by mutual funds in the same category. For example, if you have invested in a diversified equity fund, you can benchmark your return against the BSE Sensex, as it is representative of the whole market. If your fund has outperformed the Sensex, you can be sure that the fund manager has done a good job. However, if he is lagging the benchmark, you should closely watch the fund (its investment strategy, portfolio, etc.) and quit it if there is no improvement in its performance.
The performance alone does not make a fund house a winner. Equally important is the service standards and transparency in actions. It is also essential that the fund should offer speedy solutions to grievances of investors. The reputation of the fund house among its investors and public at large indicates how well the fund scores on this front.
Every financial daily offers daily NAVs of all mutual fund schemes. Magazines also come out with annual survey of mutual funds. There are even magazines dedicated entirely towards mutual fund industry. Internet is also a great place for information. There are dedicated sites as well as financial sites, which offer information on mutual funds.
|Resolving your grievances||
|Investors can get in touch with the contact person named in the offer document, trustees and directors of the AMC with their grievances. Mutual funds are regulated by Sebi. The investor has the recourse to approach Sebi for any grievances towards a mutual fund in connection with non-receipt of dividends, redemption, account statement, etc. Various investor forums also take up the case of individual investors.
Investors can contact:
Securities and Exchange Board of India (Sebi)
Mutual funds department,
B Wing, First floor,
224, Nariman Point,
Mumbai 400 021.
Phone: 285 0451-56
Consumer and Education Research Society
Gandhi Nagar Highway,
Ahmedabad 380 054.
Investor’s Grievance Forum
9/C Neelam Nagar,
Mumbai 400 084.
|Debt mutual funds
The objective of income funds is to provide regular and steady income to investors. Debt funds generally invest in bonds, corporate debentures, government securities and money market instruments such as treasury bills, certificate of deposits, etc. They are ideal for investors who don’t want to take much risk. However, they are not totally risk free. They NAV of debt funds can be hit by a rise in interest rates.
Short-term debt funds
These schemes invest in debt securities with tenures of less than six months.
Medium-term debt funds
These schemes invest in debt securities with tenures of six months to one year.
Long-term debt funds
These schemes invest in debt securities with tenures of more than one year.
Note: It is essential for investors to match their investment horizon with that of the debt fund. In a situation of changing interest rates, long-term debt funds face a higher risk compared to short-term and medium-term debt funds. This is because, when interest rates rise or fall, the investment value of long-term debt securities are affected more severely since their tenures are longer. If an investor is looking to park his money for the short-term and does so in a long-term debt fund, in a rising interest rate scenario, when he wants to exit, he may face a capital erosion.
Gilt mutual funds
Gilt funds invest only in government securities. Government securities don’t have credit or default risk. However, NAVs of gilt funds can fluctuate with the change in interest rates.
Liquid Funds or Money Market Funds
These funds strive to provide easy liquidity, preservation of capital and modest income. They generally invest the corpus in safer short-term instruments like treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes do not fluctuate sharply. They are ideal for corporate and individual investors looking to park funds for short periods.
Floating rate funds
They invest most of their money in instruments with floating rate coupon or interest i.e. the interest or coupon on these instruments will be linked to a market benchmark. If there is a change in the benchmark, it will reflect in the coupon also. That makes them ideal investment in a rising interest rate scenario.
Monthly Income Plans
The name is misleading. MIPs are nothing but balanced funds with lower level of exposure to equity. They invest a small part of their corpus in equity to enhance returns. There are various schemes with equity exposure of 10-35% available in the market. MIPs are ideal for traditional debt investors who want to take small exposure to equity.