[pradkumar]

Hi,

One more example (perhaps better):

Category: Hybrid or balanced funds.

Tata Balanced Fund vs. LIC MF Balanced (an extremely poor performer)

Std Dev: 13.27 | 13.05
Sharpe: 1.05 | 0.34
Sortino 1.76 | 0.57
Beta: 0.99 | 0.97
Alpha: 9.66 | 0.23

What does alpha indicate here?

Thanks,

Pradeep

Originally Posted by pradkumar

Hi,

I have understood to some extent what is standard deviation, sharpe and sortino ratio, and beta. However, I have no clue about alpha.

Can somebody provide an example of alpha? I am taking a wild guess here. Does it indicate by how much it has outperformed the benchmark index, that is, S&P BSE 200 in this case?

In the screen shot, I have taken two funds from the same category for the comparison.

Note: Axis Long Term Equity Fund is a tax planning fund, though the name is a misnomer.

Thank you,

Pradeep

[pradkumar]

Sorry for the back to back posts. I finally found a decent example:

http://www.business-standard.com/art...0400305_1.html

Thanks,

Pradeep

Originally Posted by pradkumar

Hi,

One more example (perhaps better):

Category: Hybrid or balanced funds.

Tata Balanced Fund vs. LIC MF Balanced (an extremely poor performer)

Std Dev: 13.27 | 13.05
Sharpe: 1.05 | 0.34
Sortino 1.76 | 0.57
Beta: 0.99 | 0.97
Alpha: 9.66 | 0.23

What does alpha indicate here?

Thanks,

Pradeep

[ghodlur]

Experts,

Have a query regarding Ultra short term debt funds. Are these better than Fixed deposits? Duration would 3-6 months max. How is the liquidity of these funds and the taxation applicable (if I am in the highest tax bracket)?

Also a suggest a few good performing Ultra short term debt funds. Value researchonline show Franklin India and Axis funds as good fund houses in this category. Anyone invested??

[sgiitk]

@ghodlur; Taxation wise all debt funds, unless you hold them for three years no tax/indexation benefits. So better take the growth route, if you plan to stick around.

If you want returns better than FD then there are two options. Balanced funds (Equity oriented), or Arbitrage funds. While the former have done exceptionally well over the past year, the latter also get you about 6-8%. Remember if you hold for a year or more it is tax free.

[DieselFan]

Originally Posted by ghodlur

Experts,

Have a query regarding Ultra short term debt funds. Are these better than Fixed deposits? Duration would 3-6 months max. How is the liquidity of these funds and the taxation applicable (if I am in the highest tax bracket)?

Also a suggest a few good performing Ultra short term debt funds. Value researchonline show Franklin India and Axis funds as good fund houses in this category. Anyone invested??

Tax treatment of returns from short term debt is same as FD but if you are getting dividends by dividend payout option then the dividend is tax free in the hands of the investor.

Franklin India ultra short term debt fund is the best fund with good returns in short term.

[nowwhat?]

Originally Posted by ghodlur

Have a query regarding Ultra short term debt funds. Are these better than Fixed deposits? Duration would 3-6 months max. How is the liquidity of these funds and the taxation applicable (if I am in the highest tax bracket)?

• You will usually get better returns than most savings accounts and FDs. Do bear in mind that on some months, returns can be negative.
• Liquidity is no problem, just redeem online like equity MFs.
• Check the exit load of the fund you select, ultra short term funds should have ZERO exit load.
• No tax benefit at all for the period you plan to invest, any interest income will be clubbed to your overall income.
• Debt MFs are recently under the radar of SEBI after the JP Morgan -- Amtek Auto fiasco and heavily regulated, so no worries of losing your money.
• Unless you are planning to invest a substantial chunk of money (>10 lakhs), the extra interest % will not amount to a hill of beans and may not be worth the hassle. Maybe better to open a DBS digibank savings account that gives 7% interest.

Originally Posted by DieselFan

Tax treatment of returns from short term debt is same as FD but if you are getting dividends by dividend payout option then the dividend is tax free in the hands of the investor.

Any dividend you receive is after the fund deducts Dividend Distribution Tax of 28.33% (maybe slightly more with the new Krishi Kalyan cess). So it is not tax free at all.

[ghodlur]

Originally Posted by DieselFan

Tax treatment of returns from short term debt is same as FD but if you are getting dividends by dividend payout option then the dividend is tax free in the hands of the investor.

Thanks for the info @DieselFan, @nowwhat and @sgiitk.

Happened to see this on moneycontrol website regarding the taxation of debt funds. It says the dividends are subjected to dividend distribution tax but lesser than growth for the highest tax bracket. I am confused now.

Tax treatment: In case of debt funds, one can invest in growth or dividend option. If invested in the growth option, the tax treatment would be as per the tax slabs for less than 12 month investment and Longterm capital gain treatment for over 12 months. For debt funds, longterm capital gains tax is the lower of 10% without indexation or 20% with indexation. Indexation is just adjustment of your principal for inflation. With indexation, the effective tax would be just 5-7%. Hence, it will be a good idea to invest one’s liquidity margin in growth option, if the chances of it’s short-term usage are low. If the money would be required within 12 months of deployment, then Dividend mode would be a marginally better option for those in the highest tax slab. The dividend distribution tax ( DDT ) is 28.325%. This is better than the 30.9%, a person in highest tax slab would pay. For those in the lower tax brackets, growth option itself would be better.

http://www.moneycontrol.com/news/mf-...ce=ref_article

[nowwhat?]

Originally Posted by ghodlur

Happened to see this on moneycontrol website regarding the taxation of debt funds. It says the dividends are subjected to dividend distribution tax but lesser than growth for the highest tax bracket. I am confused now.

What's to be confused about? 28.33% (+0.5% Krishi Kalyan cess) versus 30.9% when you pay income tax on interest/dividend income. Unless you are parking a whole lot of money, the difference won't amount to much.

[DieselFan]

Originally Posted by ghodlur

Thanks for the info @DieselFan, @nowwhat and @sgiitk.

Happened to see this on moneycontrol website regarding the taxation of debt funds. It says the dividends are subjected to dividend distribution tax but lesser than growth for the highest tax bracket. I am confused now.



http://www.moneycontrol.com/news/mf-...ce=ref_article

Yes dividend mode is the better option for highest tax bracket individuals. Plus the advantage of not filing advance income tax or not paying penalty interest on tax while filing returns exists and IT returns filing becomes simpler.

[hothatchaway]

Originally Posted by sgiitk

If you want returns better than FD then there are two options. Balanced funds (Equity oriented), or Arbitrage funds. While the former have done exceptionally well over the past year, the latter also get you about 6-8%. Remember if you hold for a year or more it is tax free.

Sir,

If I do a SIP on a balanced fund, do I need to wait for at least 12 months to elapse from the date of each monthly purchase to ensure its tax free?

Also, is it completely tax free if 12 months have elapsed or do some short term capital gains tax apply?

thanks

[srvm]

Originally Posted by hothatchaway

Sir,

If I do a SIP on a balanced fund, do I need to wait for at least 12 months to elapse from the date of each monthly purchase to ensure its tax free?

Also, is it completely tax free if 12 months have elapsed or do some short term capital gains tax apply?

thanks

If the Balanced Fund has more than 65% of its money invested in Equities then it is considered an 'Equity oriented Fund' else it is considered a 'Debt oriented fund'. They are taxed differently. See picture below.



Also MF units are counted by First-in-First-out basis. If you wait for more than 1 year after your last SIP purchase then all your units/investment becomes Long term investment - hence no capital gains tax. If you redeem before elapse of 1 year (after last SIP purchase) then only profits from units that have been held for more than a year are tax-free. Remaining will be taxed at 15%.

Hope this helps.

[INJAXN]

Saw this news y'day:
You can redeem only Rs 2 lakh from MF scheme if your fund house faces systemic crisis
Source:


What if we both ( MF and I ) are in crisis situation at the same time, Does the MF gets to keep my money and I dont? well thats sad, or am I missing something?

[pradkumar]

You can withdraw up to 2 lakh without any restrictions. I am assuming that nobody would park all the funds into one fund house.

http://economictimes.indiatimes.com/...w/52528680.cms

Pradeep

Originally Posted by INJAXN

Saw this news y'day:
You can redeem only Rs 2 lakh from MF scheme if your fund house faces systemic crisis
Source:


What if we both ( MF and I ) are in crisis situation at the same time, Does the MF gets to keep my money and I dont? well thats sad, or am I missing something?

[INJAXN]

Originally Posted by pradkumar

You can withdraw up to 2 lakh without any restrictions. I am assuming that nobody would park all the funds into one fund house.

Well I have some funds with more than 2lakh in it, so it is time to split.

But in this case, I will have too many funds in my portfolio, is it a good idea to have these many funds? Difficult to keep track of all.

I already have 7 funds with 3 fund houses.

Nitesh

[nowwhat?]

Originally Posted by INJAXN

Saw this news y'day:
You can redeem only Rs 2 lakh from MF scheme if your fund house faces systemic crisis Does the MF gets to keep my money and I dont? well thats sad, or am I missing something?

Originally Posted by pradkumar

You can withdraw up to 2 lakh without any restrictions. I am assuming that nobody would park all the funds into one fund house.
http://economictimes.indiatimes.com/...w/52528680.cms

Originally Posted by INJAXN

Well I have some funds with more than 2lakh in it, so it is time to split.

Please read from a reliable source instead of the alarmist reports that Times Group publications usually resort to.

http://www.livemint.com/Money/a4idX0...investors.html

Firstly it all began when JP Morgan invested a considerable portion of two of their debt MFs into Amtek Auto. Amtek's debt took a nosedive when it was de-rated by a rating agency. Two of JP Morgan's debt funds depreciated a lot and investors started pulling their money out -- Remember that debt funds are usually used by corporates to park their funds for the short term. Amtek suddenly has liquidity problems and JP Morgan then came under redemption pressure. They stopped most of the redemptions by putting in some arbitrary rules such as limiting redemptions to 1% and so on. JP Morgan eventually got out of their Amtek Auto debt at a loss, but the overall effect on their 2 MFs wasn't that earth shattering.

Now SEBI has stepped in and not only put in new rules such as limiting debt in any one company's papers to 10%, but they have also stated that up to 2 lakhs redemption must be allowed as normal and beyond that amount, it will take at most 10 days for the remaining amount.

All equity and debt holdings of MFs are held in a separate trust and the holdings are periodically audited and SEBI keeps a hawk's eye over it. MFs are safe and there is nothing to worry about. I have holdings worth 10s of lakhs in just a few mutual funds and I am going to continue with those as before.

PS: For those who know about the NSEL scam which was NOT regulated by SEBI and where there was no underlying physical stock (gold, silver, etc.), just fraudulent warehouse receipts, bear in mind that JP Morgan crisis was nothing like it but an accident which in hindsight was simply waiting to happen.