UTI Wealth Builder Fund Series II

Q. Dear Ashal,
This fund`s theme seems to be good. Is it worth investing? I am asking, since I have invested in Gold funds (I was going to quit these ones and start investment in Gold ETF). But now i want to know, what will be good.

regards,
MIK

Ans. Dear MIK, this UTI fund is in a class of it`s own. Having at least or more than 65% Eq. exposure (this is to gain from the Taxation window for Eq. MFs) & mandated to not more than 35% in gold ETFs or money market instruments, it`s very hard to compare this fund with any other fund.

The fund is relatively new (just completed it`s 1st year of operation in Nov. 2009). From it`s launch in Nov. 2008, till March 2009 the Eq. as well as Gold market, both were dull. From march 2009 onwards, both these asset class r firing all guns blazing. This may create a misleading picture due to super duper performance.

In future how it`s Eq. component 'll perform is yet to be tested. having only 35% Gold ETF exposure may not give enough diversification for a person who wants to invest a part of his portfolio in gold ETFs. Yes to have a Gold exposure as per ur requirement u w`d have to stop in some of ur other plain Eq. funds to keep the Eq. & Gold ratio in ur portfolio at ur desired level.

Sample this what i mean.

I assume Gold price 17K per 10 gm.

In normal if u want to invest for 1 gm. of gold in ur portfolio ur inv. amount `ll be 1700 Rs.
In case of this UTI Wealth Builder Fund II, to have the same 1 gm. Gold u w`d have to invest around 5K Rs. - 1700 Rs. for 1 gm of Gold & remaining 3300 Rs. for 65% eq. exposure. As u rinvesting additional 3300 Rs. in Eq. thru this fund, u w`d have to stop some of ur other funds. To maintain the over all balance of Eq. & Gold.

In general, people may invest from diversification point of view to have exposure in 2 asset class under a single investment.

Thanks

Ashal...

Tax calculation for STCG on STP from Liquid fund to Equity fund

Q. - Dear Friend,

i have been reading ur post quite long time. please advise on this.

I would like to know the Tax treatment on STP transaction. My transaction are ::

Invested Rs. 49,999 in DSPBR MoneyManager fund on 10th of Dec 2008. Registered STP in DSPBR top 100 equity fund.

started STP from 7th of Jan 2009 for Rs. 4000 every month. so till date total 4 instalments totalin 16000 has been transfered to top 100 equity fund. i understand tax treatment for equity fund. but not for liquid fund. The profit i made each month is

7th jan = Rs. 43
7th Feb = Rs. 57
7th Mar = Rs. 60
7th April = Rs. 65

I would like to know the tax treatment on liquid fund. if there is any tax how it will be taxed(like i need to add in my salary income or some % i have to pay).

If i dont show these incomes to IT Department(i think very few Retail investor use to show these incomes) what will happen.

Waiting for ur reply.

Thanks
Amit

Dear amit, ur STP transactions from Liquid fund to Eq. fund r ok.

The tax treatment is as below.

For Transactions b4 31st of march 2009, the same `ll be treated at STCG & `ll be added to ur income from all other sources & `ll be taxed as per ur tax slab rate in the prev. FU i.e. 2008-2009.

So for total STCG = 43+57+60 = 160 Rs.

As per ur Tax slab the Tax `ll be =

@ 10.3% slab = 17Rs.
@ 20.6% slab = 33 Rs.
@ 30.9% slab = 50 Rs.
@ 33.99% slab = 56 Rs.

Ur April onwards STP `ll be taxable in the same manner for ur income in the current FY i.e 2009-2010.

I hope the message is clear to u now.

thanks

Ashal...

14.16% or 33.99%? Which Tax Rate is higher?

Strange isn’t it! With out doubt majority of U ‘ll declare 14.16% as lower Tax than 33.99%. Some of u may be thinking what I’m talking about? My dear friends my question is quite interesting & a valid one. Let me clear u what I’m asking?

All of us already aware that Div. Distribution Tax on Debt based MFs is 14.16% where as STCG Tax on debt funds for a person in the highest Tax slab is 33.99%. Now think again on my question & answer.

Now read below to find the truth –

I assume there r 2 investors Mr. Sharma & Mr. Kapoor. Both r in the highest Tax slab of 33.99%. Now both have a surplus saving of 10L Rs. Which both want to invest in secure debt funds. There is a debt fund available for investment @ NAV of 10 Rs. for both Growth as well as Div. payout option. Mr. Sharma opts to invest in Div. payout option. While Mr. Kapoor has some other plans & invest in Growth option. From 10L Rs. each has been allotted 1L Units. On 364th day, the NAV of the fund for both option is 12 Rs.

Div. pay out option – The fund announces a div. pay out of 10% per Unit i.e. 1 Rs. per unit.
A. Div. Amount = 1*No. of Units = 1*100000 = 100000 Rs.
B. Total amount withdrawn from fund including Div. Distribution Tax = 100000/0.8584 = 116496 Rs.
C. Hence DDT = B-A = 16496
D. Per Unit of fund, the impact of Div. = 116496/100000 = 1.165 Rs.
E. Post Div. NAV of fund = 12-1.165 = 10.835 Rs.
F. Value of investment after Div. distribution = E* 100000 = 1083500

Growth Option – In parallel to Div. amount of 1L Rs., Mr. Kapoor decides to book STCG. Here is his calculation

A. No. of UNITs redeemed for STCG = 8833.8
B. Redeemed amount = Per Unit NAV*A = 12*8833.8 = 106005.6
C. Per UNIT STCG = 12-10 = 2 Rs.
D. Tax on C @ 33.99% = 0.6798 Rs.
E. Total STCG Tax = A*D = 6005.6
F. Redeemed amount net of STCG Tax = B-E = 100000 (Equal to Div. Received under Div. pay out option)
G. Total No. of Units remain = 100000 – A = 91166.2
H. Value of investment post STCG = G*NAV of UNIT = 1093994.4

Now all of us can look, DDT (@ 14.16% ) is higher than STCG Tax (@ 33.99%) due to which the value of investment is higher for Mr. KAPOOR.
So it’s now for all of U guys to decide what to do in case of investment in Debt funds.
The above calculation once again proves that don’t look at the nos. for what they appear at first glance, just dig deep & u ‘ll see another truth.

Thanks

Ashal

STCG & Income Tax liability

Hi,
I am a salaried employee with annual salary of 6 lac/annum. I was involved in the following trading in the NSE stock market. I want to know the STCG and the income tax liability. Please help in determining the exact STCG and tax on it.

Trade-1 - Bought 10 shares of Reliance Industries on 20-05-2008:
Rate per share: 2100
Brokerage: 157.50
Service Tax: 19.50
STT: 26.25

Trade-2 - Sold 10 shares of Reliance Industries on 25-06-2008:
Rate per share: 2200
Brokerage: 165
Service Tax: 20.40
STT: 27.50

Dear, Here is the calculation u asked for. (Plz. note STT \\`ll not be considered for purchase or sell price)
A. Purchase price = 2100*10 = 21000
B. Brok. + service tax = 177
C. Net purchase cost = A+B = 21177
D. Sell price = 2200*10 = 22000
E. Brok. + service Tax = 185.40
F. Net sell cost = D-/e = 21814.60
G. net STCG = F - C = 637.6 Rs.
H. Tax on STCG @ 15.45% (as shares were sold thru recognized stock exchange & STT was paid at the time of sell)= 98.51 = 99 Rs. only

Thanks
Ashal...