Gains from gold ETFs will have a tax treatment similar to debt mutual funds. Thus, when an investor redeems units of gold ETFs held for more than a year, he is subjected to long-term capital gain tax of 10% without indexation, or 20% with indexation, whichever is lower. On the other hand, if the period of holding is less than a year, the short-term capital gain will be clubbed with the income of the individual investor, to be taxed as per the applicable slab of the investor. However, unlike physical gold, investors in gold ETFs benefit as they do not need to pay wealth tax.
Is it the right time to invest in gilt funds What all should I look at before investing in them
Rajesh Kumar Singh
Gilt mutual funds predominantly invest in government securities of varying maturities. It is a suitable investment vehicle for retail investors to take exposure in government securities, which, otherwise, is not possible due its large ticket-size. However, before picking a gilt fund, you should look at the percentage of its government securities (GSec) exposure.
Though the fund is expected to keep 100% gilt exposure, some funds do move away from their investment mandate and invest in non-GSec papers, thereby increasing the credit risk of the fund, which, ideally, should be zero since sovereign papers are risk-free in nature.
Another important facet is the average maturity of the fund. Funds that invest in long-dated papers would have a high average maturity, increasing the risk for investors. Thus, depending on their investment horizon and risk appetite, investors can choose between short-term and long-term gilt funds. Normally, long-term gilt funds give the best returns when interest rates fall. Thus, the right time to invest in these funds should be based on ones view on the interest rate direction.
I want to invest in some foreign funds through mutual funds in India. What is the tax treatment and do I have to give KYC
To Indian investors benefit, we do have access to foreign funds through the route of global feeder funds, which are currently being offered by a host of asset management companies. Such global feeder funds are either geographically specific or thematic in nature and provide a nice geographical diversification benefit to an investors portfolio. The tax treatment of these global feeder funds depends on its allocation to Indian stocks. Funds that invest at least 65% in Indian stocks and the remaining in international markets are categorised as equity funds. If the above allocation mix is not met, then the global fund would be classified as debt mutual fund for tax treatment. Thus, the long-term gains would be taxed at a flat rate of 10% without indexation, or 20% with indexation. The short-term gains will be added to the investor's income and taxed as per the applicable slab rates. For KYC purpose, investors investing in any category of mutual funds, including foreign mutual funds, have to furnish PAN details, irrespective of the size of their investment.
Can I keep R3 lakh as contingency money in a liquid fund What should be the duration and how will it be different from fixed deposits
Liquid funds can definitely be used as a good investment avenue to park your contingency fund, as they are considered to be very less risky and are extremely liquid in nature. Liquid funds are a superior alternative to fixed deposits to park contingency money as you are not subjected to any lock-in period, as is the case with fixed deposits. Also, if you stay invested for more than a year, liquid funds are tax-efficient compared to fixed deposits. However, you should keep a good part of the money as liquid cash at home or in a savings account for easy withdrawal.
The writer is investment analyst, Morningstar India
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