Gold prices likely to benefit if Iraq crisis continues, rupee depreciates

Jul 01 2014, 08:27 IST
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SummaryAs long as the method and period of comparison is consistent, you can look at either point-to-point or compounded returns. For equity funds

To get an idea of returns from equity funds, should I look at point-to-point returns or compounded returns? How can I do that by tracking daily NAVs?

—Bhuvan Singh

As long as the method and period of comparison is consistent, you can look at either point-to-point or compounded returns. For equity funds, it is better to look at returns over the long term, preferably a business cycle, rather than look at returns on a daily basis.

Since fund houses are charging customers more for their expansion in tier II and tier III cities, should I invest in funds that concentrate in big cities? How would I know that?

—Purab Diwan

While expense is one of the things you should definitely look at while investing in the fund, other criteria, such as the management team, the investment philosophy of the fund you are investing in and the consistency of performance are equally, if not more, important factors. You can check the

expense ratio of funds on their factsheets, or on their websites.

Is it alarming if a fund reports returns lower than the benchmark? Should one move out of it? What are the implications of switching funds, say, once a year?

—Saurabh Sen

A fund delivering returns lower than the benchmark is not a concern if that is over the short term, such as a year. However, if the fund consistently delivers returns lower than the benchmark over the long term (3-5 years), it is definitely a matter of concern — it shows that something

is not working for the fund. It could be the result of poor fund management skills, poor processes, lack of proper risk management or poor execution

of strategy.

Do I have to pay any tax on

the annual dividends from MF schemes? If yes, at what rate?

—Amit Goyal

Mutual fund dividends are tax-free in the hands of the investor. However, MFs deduct dividend distribution tax while crediting the dividend. For equity funds, however,

no dividend distribution tax is deducted. For debt MFs, dividend distribution tax stands at 25%, which the AMC deducts if you are an individual investor.

How are fixed maturity plans (FMPs) better than bank or post office deposits? Are the principal and returns guaranteed?

—DK Raman

FMP investments, when made in the growth option and held for more than a year, are subject to long-term capital gains, which can be beneficial from the tax angle compared to bank deposits or post office deposits, where interest

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