Income Tax Treatment of Dividend by Mutual Fund & Redemption of Mutual Fund Unit

CBDT has issued the circular clarify the tax treatment on Income distributed by Mutual Funds as dividend and Payment made on Redemption/Repurchase of Mutual Fund units.

For Mutual Fund Companies: They had to pay dividend distribution tax on income distributed as dividend under section 115R.In case of redemption/repurchase any payment made by Mutual Fund Companies will be taxed in hands of receiver as capital gain.

For Mutual Fund Investors:  the income so distributed by the mutual fund or specified company in the hands of the recipient unit holder is specifically exempt from tax under section 10(35)of the Act. But in case of transfer of mutual fund units the recipient of such income is liable to pay capital gains tax.

CIRCULAR NO. 6/2014 [F. No. 225/182/2013-ITA.II] Dated: February 11, 2014

Circular clarifying the scope of additional income tax on distributed income u/s 115R

Subject: – Clarification regarding scope of additional income-tax on distributed income under section 115R of the Income-tax Act -regarding.

Section 115R of the Income-tax Act, 1961 (‘Act’) provides for levy of additional income-tax on distributed income to unit holders (hereinafter referred to as ‘additional income-tax’).

2. It has been reported that some field authorities are taking a view that mutual funds/specified companies are required to pay additional income tax under sub-section (2) to section 115R of the Act not only on income distributed by way of dividend but also on payments made at the time of redemption/repurchase of units as well as at the time of allotment of bonus units to existing investors.

3. The matter has been examined by the Board. Section 115R is placed under Chapter XII-E of the Act, which is titled as “SPECIFIC PROVISIONS RELATING TO TAX ON DISTRIBUTED INCOME” and prescribes special provisions for taxing ‘distributed income’, which is not taxed under any other provisions of the Act.

4. Sub-section (2) of section 115R of the Act provides that any amount of income distributed by (i) a specified company, or (ii) a mutual fund to its unit holders shall be chargeable to tax and such entities shall be liable to pay additional income tax on such distributed income at the rates prescribed therein. The income so distributed by such entities is the dividend paid to the unit holders and is liable to tax under this section. However, redemption of units or repurchase of units would not attract levy of tax under sub-section (2) to section 115R of the Act as such income is not of the nature of income ‘distributed to the unit holders and hence lies outside the purview of this section.

5. Further, the income so distributed by the mutual fund or specified company in the hands of the recipient unit holder is specifically exempt from tax under section 10(35)of the Act. Proviso to section 10(35) of the Act stipulates that exemption of income under this section is not applicable to those cases where transfer of units takes place. The recipient of such income is liable to pay capital gains tax, if applicable, on transfer of such units as per relevant provisions of the Act and shall not be subject to additional income tax under section 115R of the Act.

6. Similarly, bonus units at the time of issue would not be subjected to additional income tax under section 115R of the Act since issue of bonus units is not akin to distribution of income by way of dividend. This may be inferred from provisions of section 55 of the Act which prescribes that ‘cost of acquisition’ of bonus units shall be treated as nil for purposes of computation of capital gains tax.

7. In view of above position, Central Board of Direct Taxes, in exercise of its powers under section 119 of the Act hereby clarifies that additional income-tax under sub-section (2) of section 115R of the Act is to be levied on income distributed by way of dividend to unitholders of mutual funds or specified companies and receipts from redemption/repurchase of units or allotment of additional units by way of bonus units would not be subjected to levy of additional income tax under that section.

8. This may be brought to the notice of all concerned.

Performance and Analysis Report on HDFC Top 200 Mutual Fund

Performance and Analysis Report on HDFC Top 200 Mutual Fund as on 31st May 2013

Objective of HDFC Top 200 Mutual Fund: The objective of the Fund is to generate long term capital appreciation from a portfolio of equity and equity-linked instruments primarily drawn from the companies in BSE 200 index.

Investment Strategy of HDFC Top 200 Equity Funds:  The Scheme will construct a portfolio that will invest in BSE 200 index stocks. As the number of stock will be from the pool of well researched companies having good performance report will lead to risk will also be reduced through a diversification of the portfolio.

Investment Approach for HDFC Equity Investment Portfolio

  • Focus on the long term growth in the equity investment
  • Investments confer proportionate ownership to have a comprehensive understanding of how the business operates. The key issues to focus on are growth opportunities, sustainable competitive advantage, industry structure and margins and quality of the management.
  • Maintain a margin of safety: The benchmark for determining relative attractiveness of stocks would be the intrinsic value of the business. The Investment Manager would endeavor to purchase stocks that represent a discount to this value, in an effort to preserve capital and generate superior growth.
  • Maintain a balanced outlook on the market: The investment portfolio would be regularly monitored to understand the impact of changes in business and economic trend as well as investor sentiment. While short-term market volatility would affect valuations of the portfolio, this is not expected to influence the decision to own fundamentally strong companies.
  • Disciplined approach to selling: The decision to sell a holding would be based on either the anticipated price appreciation being achieved or being no longer possible due to a change in fundamental factors affecting the company or the market in which it competes, or due to the availability of an alternative that, in the view of the Investment Manager, offers superior returns

Investment Allocation of HDFC Top 200 Mutual Fund

InstrumentsIndicative Allocation (% of total assets)Risk Profile
Equity & Equity Related Instruments of the constituents of BSE 200 Index0 – 100% (including use of derivatives for hedging and other uses as permitted by prevailing SEBI Regulations)High
Debt* & Money Market InstrumentsBalance in Debt & Money Market InstrumentsLow to Medium

 Investment Analysis:  HDFC Top 200 Mutual Fund has given one year return of 19.46% as compare to BSE 200 Index , which has given 20.65% And Fund is charging NIL entry load and exit load of 1% if redeemed with in 1 year and Nil exit load if redeemed after 1year.

Scheme Name Date of InceptionCorpus in Crs3 Months6 Month Return1 Year return
HDFC Top 200 Fund 11-Oct- 199611697.96.65%4.70%19.46%
Benchmark –BSE 200 Indices1.47%5.45%20.65%

 Mutual Fund NAV: Rs 221.41/- as on 31st May 2013

Load Structure

  • Entry Load: NIL
  • Exit Load (Under Normal Circumstances):
  • Upto 1 Year  -1%

Minimum Investment: For new investors: Rs.5000 and any amount thereafter and For existing investors: Rs. 1000 and any amount thereafter.

Investment in Top ELSS (Tax Saving/Equity Linked Saving Scheme) Mutual Funds


Meaning of Equity Linked Saving Scheme or Tax Saving Mutual Fund: ELSS Mutual Fund (also known as Tax Saving Mutual Fund) means Mutual Fund Scheme investing in the stocks listed on the stock exchanges. Objective of ELSS Mutual Fund Scheme is to invest atleast 60% of their AUM in companies which are listed on recognized stock exchange in India. Check List of Best Performing Large Cap Mutual Fund Schemes for Investment in Mutual Fund

Investor get the benefit of Income Tax Deduction of Rs 100,000/- (Maximum Deduction) under section 80C of the Income Tax Act, 1961. But Redemption of units under the Scheme available only after a three year lock-in period from the date of allotment of units.

Investment made in the ELSS Mutual Fund scheme will qualify for a deduction from Gross Total Income upto Rs.100,000/- (along with other prescribed investments) under section 80 C of the Income Tax Act, 1961 to the eligible investors under the Income Tax Act, 1961. Generally ELSS scheme would be benchmarked against BSE 100. List of best tax saving mutual fund schemes based on AUM, last 1 Year Return and Last 3 Year return of these tax saving mutual fund scheme as on 1st April 2013. Check Your Mutual Fund KYC Status online Before Investing in Mutual Fund using your PAN Card

 

Equity Linked Tax Saving Funds

NAV as on

Launch

Corpus

Point to Point Return

P2P Compound Annualized (%)

28-Mar-2013

Date

Feb-13

3 Month

6 Month

1 Year

3 Year

Top Mutual Fund Tax Scheme by AUM       
SBI Magnum Tax Gain Scheme 93

62.61

Mar-93

4381.91

-6.42

-2.28

9.94

2.64

HDFC Taxsaver

225.33

Jun-96

3359.98

-7.46

-2.37

3.22

2.94

Reliance Tax Saver (ELSS) Fund

21.42

Sep-05

1944.69

-12.74

-7.87

3.50

4.58

Birla Sun Life Tax Relief 96

11.00

Mar-08

1415.57

-7.09

-0.63

11.68

0.21

ICICI Prudential Taxplan

144.94

Aug-99

1392.13

-8.17

-1.50

8.53

4.61

        
Top Mutual Fund Tax Scheme by 1 Year Return       
Axis Long Term Equity Fund

14.16

Dec-09

478.06

-4.18

-0.69

15.43

9.51

IDFC Tax Advantage (ELSS) Fund

21.04

Dec-08

151.09

-4.81

1.39

15.35

5.14

HSBC Tax Saver Equity Fund

15.67

Jan-07

185.89

-6.33

0.33

14.81

4.38

Principal Tax Savings Fund

77.61

Mar-96

204.60

-8.41

-0.01

14.30

1.92

IDFC Tax Saver (ELSS) Fund

15.33

Mar-07

34.52

-3.03

1.53

13.78

4.24

        
Top Mutual Fund Tax Scheme by 3 Year Return       
Axis Long Term Equity Fund

14.16

Dec-09

478.06

-4.18

-0.69

15.43

9.51

Quantum Tax Saving Fund

24.02

Dec-08

10.33

-3.32

0.41

11.56

8.02

Franklin India Taxshield

228.71

Apr-99

896.18

-4.80

0.68

9.61

6.76

BNP Paribas Tax Advantage Plan

15.76

Jan-06

120.33

-6.11

0.70

11.70

6.70

Canara Robeco Equity Taxsaver

27.89

Feb-09

544.33

-5.75

-0.85

9.42

6.28

 

Mutual Fund Investment is subject to market risk, please read the offer documents before investing in mutual fund scheme.

Investment in Large Cap Mutual Fund


Investment in Top Large Cap Mutual Funds

Meaning of Large Cap Mutual Fund: Large Cap Mutual means Mutual Fund Scheme investing the top 50 or top 100 stocks listed on the stock exchanges by their market capitalization.

Objective of the large cap Mutual Fund Scheme is to invest in companies which are part of CNX NIFTY (NSE Index), S&P BSE SENSEX (BSE Index), CNX 100(NSE Index), S&P BSE 100 (BSE Index)

Large Cap Diversified Funds

NAV as on

Launch

Corpus

Point to Point Return

P2P Compound Annualized (%)

28-Mar-2013

Date

Feb-13

3 Month

6 Month

1 Year

3 Year

Top Mutual Fund Scheme by AUM       
HDFC Top 200

210.49

Sep-96

11455.36

-6.88

-1.78

6.99

4.58

HDFC Equity Fund

271.11

Jan-95

10998.10

-7.44

-1.97

6.23

4.76

Franklin India Bluechip

225.34

Dec-93

4943.01

-4.62

0.77

7.74

4.94

ICICI Prudential Focused Bluechip Equity

17.65

May-08

4194.24

-4.13

0.28

10.45

7.32

DSP BlackRock Top 100 Equity Fund

102.09

Mar-03

3342.86

-8.01

-2.37

5.01

3.61

        
Top Mutual Fund Scheme by 1 Year Return       
SBI Magnum Bluechip Fund

16.15

Feb-06

853.78

-2.47

4.47

19.81

4.64

Birla Sun Life Frontline Equity Fund

94.67

Aug-02

2949.83

-4.52

2.70

16.55

5.39

IDFC India GDP Growth Fund

18.49

Mar-09

22.36

-4.87

2.07

15.62

7.48

Morgan Stanley Growth Fund

63.18

Feb-94

1290.65

-5.02

3.29

14.96

2.11

Principal Growth Fund

52.67

Oct-00

245.82

-8.51

-0.04

13.34

1.34

 

 

 

 

 

 

 

 

Top Mutual Fund Scheme by 3 Year Return       
Quantum Long-Term Equity Fund

24.30

Mar-06

160.67

-3.11

0.50

11.67

8.52

IDFC India GDP Growth Fund

18.49

Mar-09

22.36

-4.87

2.07

15.62

7.48

ICICI Prudential Focused Bluechip Equity Fund

17.65

May-08

4194.24

-4.13

0.28

10.45

7.32

UTI Equity Fund

59.00

Apr-92

2209.92

-5.70

-1.08

10.35

6.74

BNP Paribas Equity Fund

37.82

Sep-04

117.71

-4.11

2.41

12.29

6.72

 

Rights of Mutual Fund Investor

  1. Investors have a right to receive the dividend declared by the company within 30 days of declaration.
  2. If redemption request is made by investors, the AMC must dispatch the redemption proceeds within 10 working days of the request. In case the AMC fails to do so, it has to pay an interest @ 15%. This rate may change from time to time subject to regulations.
  3.  Investors can obtain relevant information from the trustees and inspect documents like trust deed, investment management agreement, annual reports, offer documents, etc.
  4. Investors are mutual, beneficial and proportional owners of the scheme’s assets.
  5. They have a right to receive audited annual reports within 6 months from the financial year end.
  6. Investors can wind up a scheme or even terminate the AMC if unit holders representing 75% of scheme’s assets pass a resolution to that respect.
  7.  Investors have a right to be informed about changes in the fundamental attributes which may include type of scheme, investment objectives and policies and terms of issue.
  8.  Investors can approach for grievance redressal the investor relations officer. In case the investor does not get appropriate solution, he can approach the investor grievance cell of SEBI.
  9. The investor can also sue the trustees.

Who is of Custodian of Mutual fund Scheme and its Role in Mutual Fund

  1. The Custodian is a person appointed by the Board of Trustees.
  2. A custodian keeps the physical securities safely and also keeps a tab/label on the corporate actions of companies like rights, bonus and dividends declared by them to investors in which the fund has invested.
  3. The custodian also participates in a clearing and settlement system through approved depository companies on behalf of mutual funds, in case of dematerialized securities.
  4. The holdings are held in the Depository through Depository Participants (DPs) and only the physical securities are held by the Custodian.
  5. The custodian or a depository participant delivers and receives the units of a mutual fund at the instruction of the AMC and under the overall direction and responsibility of the Trustees.

Types of Mutual Fund Scheme

Meaning of Open Ended Mutual Fund Scheme

  1. An open-ended scheme is a scheme of mutual fund that allows the investor to enter and exit anytime at his convenience.
  2. The majority of mutual funds are open-end.
  3. It is a type of mutual fund that does not have any restriction on the amount of shares the fund will issue. If demand is high enough, the fund will continue to issue shares to investors.
  4. An open-ended fund is a collective investment scheme which can issue and redeem shares at any time. An investor will generally purchase shares in the fund directly from the fund itself rather than from the existing shareholders
  5. Open-end funds also buy back shares when investors wish to sell.
  6. In case of open ended schemes, investors can buy the units even after the NFO period is over, which is offered at par value of Rs. 10/ unit.
  7. Thus, when the fund sells units, the investor buys the units from the fund and when the investor wishes to redeem the units, the fund repurchases the units from the investor which can be done even after the NFO has closed.
  8. This buy / sell of units take place at the Net Asset Value (NAV) declared by the fund.

Meaning of Close Ended Mutual Fund Scheme

  1. A close-ended scheme is a scheme of mutual fund that does not allow the investor to enter and exit anytime at his convenience.
  2. That means the investors have to invest only during the
  3. NFO period; i.e. as long as the NFO is on or the scheme is open for subscription.
  4. Closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO).
  5. Once the NFO closes, new investors cannot enter to buy the units of shares, nor can existing investors exit, till the term of the scheme comes to an end.
  6. In order to provide entry and exit option, close ended mutual funds list their schemes on stock exchanges.
  7. The stock prices of a closed-end fund fluctuate according to market forces (supply and demand) as well as the changing values of the securities in the fund’s holdings.
  8. This provides an opportunity for investors to buy and sell the units from each other like buying / selling of shares on the stock exchange done through a stock broker.
  9. Sometimes, close ended funds also offer ‘buy-back of fund shares / units”, thus offering another avenue for investors to exit the fund.

Top 10 Asset Management Companies of India

Axis Asset Management Company Ltd.

NameAxis Asset Management Company Ltd.
Income / Debt Oriented Schemes1,935,985
Growth / Equity Oriented Schemes6,817,477
Balanced Schemes1,028,613
Exchange Traded Funds29,046
Fund of Funds Investing Overseas
Grand Total9,811,121

 

Reliance Capital Asset Management Ltd.

NameReliance Capital Asset Management Ltd.
Income / Debt Oriented Schemes172,612
Growth / Equity Oriented Schemes6,389,925
Balanced Schemes1,074,839
Exchange Traded Funds41,343
Fund of Funds Investing Overseas
Grand Total7,678,719

SBI Funds Management Private Ltd.

NameSBI Funds Management Private Ltd.
Income / Debt Oriented Schemes87,184
Growth / Equity Oriented Schemes5,730,085
Balanced Schemes72,437
Exchange Traded Funds2
Fund of Funds Investing Overseas
Grand Total5,889,708

HDFC Asset Management Co. Ltd.

NameHDFC Asset Management Co. Ltd.
Income / Debt Oriented Schemes247,240
Growth / Equity Oriented Schemes3,097,662
Balanced Schemes308,655
Exchange Traded Funds
Fund of Funds Investing Overseas55
Grand Total2,448,913

ICICI Prudential Asset Management Co. Ltd.

NameICICI Prudential Asset Management Co. Ltd.
Income / Debt Oriented Schemes276,928
Growth / Equity Oriented Schemes2,660,902
Balanced Schemes16,862
Exchange Traded Funds899
Fund of Funds Investing Overseas
Grand Total2,955,591

Franklin Templeton Asset Management (India) Pvt. Ltd.

NameFranklin Templeton Asset Management (India) Pvt. Ltd.
Income / Debt Oriented Schemes193,977
Growth / Equity Oriented Schemes2,231,995
Balanced Schemes22,886
Exchange Traded Funds
Fund of Funds Investing Overseas55
Grand Total2,448,913

Birla Sun Life Asset Management Co. Ltd.

NameBirla Sun Life Asset Management Co. Ltd.
Income / Debt Oriented Schemes158,366
Growth / Equity Oriented Schemes2,140,298
Balanced Schemes36,831
Exchange Traded Funds
Fund of Funds Investing Overseas
Grand Total2,335,495

Sundaram BNP Paribas Asset Management Co. Ltd.

NameSundaram BNP Paribas Asset Management Co. Ltd.
Income / Debt Oriented Schemes26,749
Growth / Equity Oriented Schemes2,155,301
Balanced Schemes8,890
Exchange Traded Funds
Fund of Funds Investing Overseas42,319
Grand Total2,233,259

Tata Asset Management Ltd.

NameTata Asset Management Ltd.
Income / Debt Oriented Schemes39,745
Growth / Equity Oriented Schemes1,617,471
Balanced Schemes94,576
Exchange Traded Funds
Fund of Funds Investing Overseas
Grand Total1,751,792

DSP BlackRock Investment Managers Pvt. Ltd.

NameDSP BlackRock Investment Managers Pvt. Ltd.
Income / Debt Oriented Schemes37,081
Growth / Equity Oriented Schemes1,370,767
Balanced Schemes28,052
Exchange Traded Funds
Fund of Funds Investing Overseas136,300
Grand Total1,572,200

Procedure for investing in a New Fund Offer (NFO)

Procedure for investing in an NFO starts with filling a form by the investor, which is available with the distributor.

This form is filled and submitted by the investor along with prescribed fees.

The investor must read the Offer Document (OD) before investing in a mutual

Fund scheme.

If the investor does not read the OD, he must read the Key Information Memorandum (KIM), which is available with the application form.

Once the form is filled and the cheque is given to the distributor, both these documents are forwarded to the RTA.

The RTA captures all the information from the application form into the system, and sends the form to a location where all the forms are stored and the cheque is sent to the bank where the mutual fund has an account.

After the cheque is cleared, the RTA then creates units for the investor.