FUND QUERIES

FUND QUERIES
Source: Express money

My investment in Templeton India Pension Plan has doubled to around Rs 12 lakh. Now that I have crossed 60 years, I can make withdrawals from it. How will these withdrawals be taxed?

Your withdrawals will be taxed as capital gains — (selling NAV minus buying NAV) multiplied by the number of units sold. The good news is that you don’t have to pay any capital gains tax on your investment if the following two conditions are met:
Your scheme is an equity-oriented fund (that is, its equity holding should be 65 per cent or more) and it is open-ended in nature.
Your investment in it has been for more than one year.
If both these conditions are met, your capital gains will be tax-free. Also note that since investments in Templeton India Pension Plan qualifies for deduction under Section 80C
(earlier under Section 88) of the Income Tax Act, there could be a lock-in
period of three years, during which time withdrawal is not allowed.
First-time investor
I want to invest in equity funds, but I don’t know where and how to start. Help me choose the best funds with quick returns.
Hari Monga, Panchkula
If you are looking for “quick returns”, then mutual funds are not the investment to make. I don’t know what’s the investment to make, but let me stick to what I know, which is mutual funds. I guess the main reason you are asking for “quick returns” is the experience of the past three years or so, when the stock market and most equity funds have done phenomenally well. But to expect similar returns in the
immediate future, one would have to be brave — or foolhardy.
Having said that, in the long run, equities give the best returns of all asset classes. Going by empirical evidence, the Bombay Stock Exchange (BSE) Sensex, the popular index, has returned a compounded annualised 13-15 per cent over 10-15 year
periods. Over such long periods, there are years when the market won’t perform (for example, 1995-98) and years when it will do very well (last three years). That’s why to earn top returns from equities, invest keeping the long term in mind.
The rationale for equities established, let’s put in place some ground rules for you as a first-time investor:
* Not all your savings should go into equities. Consult your financial planner on how much should. Alternatively, a crude equity allocation formula is 100 less your age (if you are the conservative types, 80 less your age). Till the age of 35 years, I would suggest the 100 less your age formula.
* Start a systematic
investment plan (SIP) in good diversified equity funds with a proven track record — the longer,
the better.
* About 60 per cent of your investment should be in funds with a large-cap bias, 30-35 per cent with a mid-cap objective, the balance in theme funds.
* Spread your risk. Don’t put all your money in just one scheme. Instead, for each objective of yours,
divide your investment across three schemes, across three fund houses. That way, even if one scheme stumbles because of bad money management, the others give you a chance to make up.
* In order to choose schemes, take the help of a good investment advisor, again with a good track record. If you want to do it yourself, go through performance rankings of independent fund-tracking agencies like Crisil or Value Research, and pick funds that have consistently done well.
* Track your schemes periodically to make sure they stay performers. Earning returns and preserving your capital is as tough, if not tougher, than earning it.