Wednesday, June 20, 2012

I WANT RETURN ABOVE SAVINGS RATE.......

I WANT RETURN ABOVE SAVINGS RATE.......

One Guest wrote,
want to park some of my money into liquid funds.
Are "ICICI Pru Gilt - Investment Plan - PF Option" and "Canara Robeco Income (G)" are liquid funds? Can I put my money in these funds? I only know that liquid funds are similar to Savings Account but with more % returns.
These above 2 funds have 5 stars in MC and they have given nearly 25-30% return in a year.
some of my other queries regarding liquid funds are as below:
+ What are tax implications on liquid funds?
+ Difference between liquid and liquid plus funds
+ If I have parked my money in liquid plus and due to some emergency I need some money how can I get it? I mean do I have to fill some form to redeem and submit at AMC? And when will I get the money in my hands?
Please help me in this.


SRIKANTH SHANKAR MATRUBAI replied :
Canara Robeco Income (G) fund is a Bond fund & ICICI Pru Gilt - Investment Plan - PF Option is a Gilt fund.
anyone of above fund is not a liquid or liquid plus fund. ur understanding regarding returns of Liquid funds is right.
+ What are tax implications on liquid funds? - Growth option treated as debt fund, so STCG & LTCG r taxed accordingly. Dividend option- div. option in ur hand is tax free but DDT is 28.325%. From taxation point of view, the DDT (div. distribution Tax) is higher in Liquid funds & at the same time due to higher maturity period of underlying securities of Liquid plus funds`, returns r on higher side in Liq. + funds, it make sense to park money in Liquid + funds.
+ Difference between liquid and liquid plus funds - The maturity period of underlying securities is slightly higher in plus funds & also the DDT is 14.15% only in case of plus funds.

U can get money on T+1 day basis. If u have opted direct trasnfer to ur acct. option while investing, the money `ll be credited to ur acct. directly. As there is no entry or Exit load in case of Liq.. & Liq. + funds, it`s better to invest in these funds thru ur online broker acct. - like Icici direct, Sharekhan, Indiabulls, .....


Selection of Growth & Div. option `ll depend upon 2 things -
1. Ur current Tax slab - as in all probability there `ll be STCG on investment in these funds which `ll be added to ur income & `ll be taxed at ur slab rate.
2. Ur time duration - if u r using these funds either to park surplus money for some better earning on ur liquid cash or u r using these funds as transfer vehicle for investing in Eq. funds under STP mode.

In case of Liq. + funds & `ll use for parking of surplus funds as well as emergency funds, the DDT `ll be 14.15% only, so if u r in 20.6% & higher Tax slab it makes sense to invest in Div. option to minimise Tax outgo.

In case u r using it for STP in Eq. funds, it`s better to invest in Growth option for easy calculation of STCG Tax.

The reason to get the nearly 25-30% return in last 1 year was due to the an inverse relationship between interest rate and prices of securities. And this gets reflected in government bonds first, so if the interest rate goes down, the prices of bonds rises and vice-versa.
On any fixed income investment, whether it’s a gilt or a corporate bond or even a fixed deposit in a bank, there are three types of risk. These are credit risk, liquidity risk and interest rate risk. A high credit risk means that a borrower wouldn’t be able to pay back an investment at all. In government securities, this risk is generally considered to be zero. In other types of f ixed income investments, this risk is higher. In any economy, government securities are considered to be of the lowest risk. Therefore Gilt fund has stood as a far safer investment avenue than others.

Gilt funds could be opportune investment for risk adverse investors particularly when interest rates are likely to go down. I think you can expect return between 8-11% on Gilt funds from now.

However, regarding the fund choice to invest, I would prefer
HDFC Income Fund and Birla Income Fund, especially the former. I have gone through the portfolio of the HDFC Income Fund throughly, and I can with some confidence, that the fund could give a return of at least 14% in the coming year inverse relationship between interest rate and prices of securities.
gilt Funds can give you somewhere between 7-9% and
debt funds should give above 12% comfortably.


Also visit http://equityadvise.blogspot.com for an indepth Equity Analysis

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