mf pointer september issue 93 - ventura securities ltd · mf pointer 4 smart investing starts here...

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Go for Tax free bonds

Issue - 93 September, 2013

Global Indices

Benchmark Closing 13-Aug-13

to 12-Sep-13

Bovespa 54,271 5.35

CAC 40 4,146 0.35

DAX 8,597 0.93

Dow Jones 15,530 -0.97

FTSE 100 6,570 -0.35

Hang Seng 23,181 1.83

Nikkei 225 14,312 3.75

Shanghai Composite 2,186 7.10

(continued on page 2)

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Equity Market

Global Equities

• For the month ended 12th September 2013, majority of the global indices ended on a positive note.

• The U.S. economy grew at a faster pace in the second quarter due to rise in exports, increasing the chances for the Federal Reserve to reduce its monthly stimulus program in September. According to revised estimates released by the Commerce Department, GDP grew at a 2.5% annual rate in the April-June period. The quarter's growth rate was more than double the pace recorded in the previous three months.

• According to the closely followed Institute for Supply Management index (ISM) index, U.S. manufacturers expanded at the fastest pace in August more than two years. The ISM Index rose to 55.7% from 55.4% in July. This was the highest reading since June 2011.

• BoE and ECB left monetary policies unchanged. The ECB improved its outlook for the euro zone economy this year. ECB President Mario Draghi stated that it expected GDP in the 17-nation euro zone to shrink by 0.4% in 2013 against previous forecast for contraction of 0.6%. The revision was in keeping with data which showed better-than-anticipated return to growth in the second quarter and encouraging signals from surveys of business activity and confidence.

• Investor's confidence in the euro zone for September improved to the highest level since May 2011 due to easing concerns over the outlook for the region's economy. The index of investor confidence improved from a reading of -4.9 in August to 6.5 in September.

Domestic Indices:

• Key benchmark indices - Sensex and Nifty rose 2.87% and 2.66%, respectively for the month ended 12th September 2013.

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Initially, markets remained volatile due to concerns that the US Federal Reserve would soon scale back its stimulus measures. However, the markets reversed the trend amid positive global cues. Moreover, renewed buying by FIIs and concerns over an imminent U.S attack on Syria eased, also boosted market sentiments. Furthermore, positive industrial production for July and new measures unveiled by the central bank supported the upside.

India's industrial production unexpectedly rebounded in July after contracting for two consecutive months. It expanded at 2.6% on account of improved performance of manufacturing and power sectors. The outcome from the Federal Reserve's meet, RBI mid-quarter monetary policy along with political developments in Syria will dictate the near-term trend of the markets. The movement of rupee will also be tracked by the market participants.

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The Indian rupee ended at $63.57 after the new RBI Governor Raghuram Rajan introduced new set of measures to attract foreign inflows into the country. Besides, foreign fund inflows into equities due to improving risk appetite after geopolitical tensions eased in Syria, also supported rupee.

Brent crude oil prices gained 3.52% for the month ended 12th September 2013. Initially, prices rose on back of upbeat macroeconomic data from U.S. and concerns about a looming military strike against Syria. Later, prices reversed the trend and fell on speculations that the U.S. Federal Reserve may scale down its quantitative easing program in September.

Bond Market

For the bond markets, there was widespread volatility due to macroeconomics factors. The benchmark 10-year bond yield closed at 8.50 percent due to the weakening rupee and a rise in global crude oil prices.

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Top 5/Bottom 5

Equity Schemes

Top Performers Under Performers

Absolute Absolute Scheme Name Ret. % (1M) Scheme Name Ret. % (1M)

HSBC Emerging Mkts Fund 12.08 PineBridge World Gold Fund -3.61

JPMorgan Gr China Off-Shore Fund 10.26 Reliance Media & Ent. Fund -2.82

Mirae Asset China Advantage 9.85 JPMorgan ASEAN Off-shore Fund -1.53

Mirae Asset Global Commodity Stock 8.67 SBI Emerging Businesses Fund -1.33

ING Global Commodities Fund 8.65 SBI Magnum MidCap Fund -0.97

Debt Schemes

Top Performers Under Performers

Annualised AnnualisedScheme Name Ret. % (1M) Scheme Name Ret. % (1M)

Tata Dynamic Bond Fund-Plan A 32.21 Religare Invesco Gilt Fund -21.31

Kotak Banking and PSU Debt Fund 28.18 ICICI Pru Long Term Gilt Fund -11.79

Tata Gilt Mid Term Fund 22.98 Templeton India G-Sec-LTP -10.63

Birla SL Gilt Plus-Liquid 22.69 DWS Gilt Fund -9.83

ICICI Pru Moderate 21.86 Templeton India G-Sec-PF -9.70

*Returns as on 12-Sept-2013

Category returns: For the month ended 12th September 2013, all the categories posted positive returns. The top five category gainers were FOF Overseas, Equity- Global, Balanced - Debt, Equity – Speciality and FOF Gold rising by 4.60%, 4.26%, 3.33%, 2.64% and 2.60% respectively. Meanwhile, the bottom category performers were Gilt funds, FOF - Debt and Income funds gaining merely by 0.62%, 0.81% and 0.82% respectively.

*Returns as on 12-Sept-2013

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Although bonds may not appear as glamorous and action-packed as stocks, there are a number of reasons why you may want to include them in your portfolio. Well chosen bonds offer a safe haven for your money and are relatively liquid. Best of all, they usually offer good returns, especially if they are tax free.

Bonding with bonds

Bonds refer to debt instruments, which are issued with the purpose of raising capital by borrowing. They usually carry a fixed coupon rate but their value moves inversely with interest rates. Accordingly, if interest rates decline, the value of a bond will rise and vice versa. Government backed bonds are considered the safest type of investment as they carry a near zero risk and the rate offered on them is considered a benchmark for other issuers of bonds. Companies with AAA rating are allowed to offer 55 basis points (bps) less than the reference government bond rates.

Bonds are generally classified as taxable bonds and tax-free bonds.

Go for Tax free bondsGo for Tax free bonds

Bonds

Taxable Bonds Tax Free Bonds

Particulars Tax Free Bonds Bank FDs

Tenor 10 years 15 years 20 years 5 - 10 years

Interest* 8.26% 8.71% 8.62% 8.75%

Pre Tax Retuns

30.90% Tax Bracket 11.95% 12.60% 12.47% 8.75%

20.60% Tax Bracket 10.40% 10.97% 10.86% 8.75%

10.30% Tax Bracket 9.21% 9.71% 9.61% 8.75%

* Interest rate for the recent REC Tax free bonds and FD rates of SBI

Tax-free Bonds

Tax free bonds have emerged as a highly popular investment option among investors due to the taxation benefit that they offer. Unlike fixed deposits, NSCs and other bonds, the interest earned from these bonds is tax free.

Tax-free Versus Taxable Bonds

Let's compare the recent issue of REC tax free bonds, which offered a tax free return of 8.71% per annum with an SBI bond trading in the bond market at a yield to maturity (YTM) of 9.77% for a time horizon for 15 years. Is it better to opt for the tax free bond or the SBI Bond? The crux of the decision lies in the tax bracket into which the investor falls. While an investor in the 30% tax bracket will benefit from the REC Bond, someone who is in the Nil slab will find the SBI Bond more attractive.

Tax-free bonds versus bank FDs

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As can be seen in the table above tax-free bonds are more tax efficient than bank fixed deposits. Tax free bonds offer a good investment opportunity, especially to investors in the higher tax brackets (30% and 20%). Also, tax free bonds offer considerable scope of capital appreciation and can be easily traded over the exchange.

Ratings

Another important feature that you should examine before investing is the bond's rating. For instance, between an India Infoline Finance Limited (IIFL) AA rated taxable bond, which is available at a YTM of 12.70% and a AA+ rated HUDCO tax-free bond offering 12.67% pretax (tax-free – 8.76%), one should opt for the HUDCO bond since it has a AA+ rating. Then again, they are not strictly comparable as the tenure for both these bonds is different; HUDCO's is for 15 years whereas IIFL's is 5 years.

Liquidity

If you do not wish to hold a bond until its maturity, you can always sell it in the secondary market for bonds (NSE and/or BSE) and book profits. The liquidity of a bond depends on its trade volumes after listing. However, to be on the safe side, you should give preference to companies that are planning to list on both the BSE and the NSE.

While the short term capital gains from such a sale will be taxed as normal income, the long-term capital gains will be taxed at 10% (without indexation) or 20% (with indexation), whichever is less. The bonds must be held for at least 12 months for the profits to be treated as long-term gains.

Tax free bonds in the pipeline

The government had allowed 13 institutions, including NTPC, National Housing Bank and HUDCO, to raise Rs. 48,000 crore through issue of tax free bonds to boost long term infrastructure finance. The chart gives the details of companies and amounts approved for raising money through tax-free bonds for the current financial year (2013-14).

The latest offerings will have the option of a 20-year term. Long duration bonds are more advisable as they reduce the reinvestment risk and offer higher coupon rates than 10-year bonds.

Buying bonds

All things considered, bonds offer a robust investment avenue. However, your investment choice should be based on your cash-flow requirements and the tax bracket into which you fall.

Source:www.economictimes.com

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Options available to save taxDeductions:-

Section Investment Avenues Deduction Limit Beneficiaries

80C a. Life insurance

b. ULIP

c. Provident Fund

d. Equity Linked Saving

Scheme (ELSS)

e. Contribution to

EPF/GPF, etc. and

f. Repayment of principal Cannot exceed Self, Spouse &

home loan amount, Rs.1 Lakh (incl - 80C, Children (children

Fees paid for 2 children 80CCC, 80CCA & need not be minor)

(tuition fees, admission 80CCD)

fees, college fees)

80CCA National Saving Certificate Cannot exceed Self, Spouse &

(NSC) Rs.1 Lakh (incl - 80C, Children (children

80CCD National Pension Scheme 80CCC, 80CCA & need not be minor)

(NPS) # 80CCD)

80CCG RGESS Rs.50,000/- NA

80D Medical Insurance Premium Rs.15,000/- for family Family includes self,

(inclusive Rs. 5,000/- spouse & dependent

towards health children

check up)

Additional Rs.15,000/- for parents or

Rs.20,000/- for senior citizen* parents

80DDB $ Medical treatment $$ Rs.40,000/- Dependent family

(self, spouse, children,

parents, brother, sister)

Rs. 60,000/- Senior citizen*

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# NPS – Maximum 10% of salary

* Senior citizen – age should be more than 60 years

$ can be used when mediclaim can not satisfy full amount treatment for diseases like cancer, kidney failure, thalassaemia, etc.

$$ Conditions needs to be fulfilled

@ higher education is above SSC, Loan taken from any financial institutions or any approved charitable institutions

** Relative includes student for whom the individual is legal guardian.

^ Savings account can be with a bank, post office or co-operative society doing banking business, If the savings account is held on behalf of a firm, association of persons or body of individuals,Then this deduction is not applicable.

80E Interest on loan for Any amount of Relative**, Self,

Higher Education @ Interest paid Spouse & Children

80TTA Interest on Saving Rs.10,000/- Individuals & HUFs^

Bank A/c^

80GG House Rent Maximum Self

Rs. 2000 p.m. $$

Exemptions:-

Section Investment Avenues Exemption Limit Beneficiaries

10(13A) House Rent Allowance (HRA) a. Actual HRA received Self

b. Rent Paid - 10% of

Basic Salary (BS)

c. 50% of B.S. $$

(whichever is less)

10(14) Conveyance Rs. 800 p.m. ## Self

10 (5) Leave Travel Allowance (LTA) Entire amount received Spouse & upto 2

or amount actually children & (parents,

spent whichever is less brothers, sisters who

(Twice in a block of are mainly dependent)

four calendar year $$)

17(2) Medical Expenses Rs. 15,000 or actually Self, spouse, children

Reimbursement spent whichever is less & dependent parents,

brother, sister

## Between the place of residence to the place of duty

$$ Conditions needs to be fulfilled

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Corporate Office Address : Website :

A1, Kailash Industrial Complex, Park Site, Off LBS Marg, Vikhroli West, Mumbai - 400 079. Tel: +91-22-6754 7000 • E mail : mutualfunds@ventura1.com • www.ventura1.com

This document is solely for private circulation only. Mutual funds like securities investments are subject to market risks and other risks. Investors are advised to read the offer document before investing.

Performing Mutual Funds

Scheme Name Corpus NAV (`) Annualised %

( Crs)# Gr Div 1 mth 3 mths 6 mths 1 yr

Income Funds

ICICI Pru Long Term Plan 230.33 13.16 10.58

Templeton India Low Duration Fund 1,754.64 13.19 10.45

Ultra Short Term Plan

ICICI Pru Flexible Income Plan 6,847.63 227.70 105.74

Templeton India Ultra Short Bond Fund 3,468.63 15.55 10.02

Birla SL FRF-Long Term Plan 1,993.02 144.76 100.08

`

10.80 8.79 9.12 8.83

11.57 6.96 8.77 8.98

11.85 8.07 8.86 8.93

11.58 8.03 8.93 8.85

10.46 6.80 8.43 8.62

Source : ACE MF*Returns for less than 1 year is absolute (in case of MIP, it is annualized) and more than 1 year are compounded annualized as on 12th September 2013#Corpus as on June 2013 as AMFI has mandated for quarterly AUM declaration.

Scheme Name* Corpus NAV (`) 6 mths 1 yr 3 yrs 5 yrs

(` Crs)# Gr Div (%) (%) (%) (%)

Hybrid - Monthly Income Plans(MIPs)

Birla SL MIP II-Savings 5 261.42 21.14 11.41

IDFC MIP 305.72 13.06 11.39 -

Reliance MIP 3,003.62 25.11 10.56

Balanced Fund

HDFC Balanced Fund 1,062.86 60.02 17.51

Equity - Large Cap

ICICI Pru Focused BlueChip Eq Fund 4,318.32 18.52 16.70

Birla SL Frontline Equity Fund 3,178.16 97.59 20.71

Franklin India Bluechip Fund 4,614.97 224.22 33.09

Equity - Multi cap

Canara Rob Eq Diver Fund 603.36 60.71 26.46

UTI Opportunities Fund 3,303.50 31.07 13.75

Equity - Midcap

Franklin India Prima Fund 726.33 298.26 30.33

HDFC Mid-Cap Opportunities Fund 2,456.68 16.64 13.98

ICICI Pru Discovery Fund 2,490.48 51.88 17.92

IDFC Premier Equity Fund 3,064.02 35.52 20.97

Equity - Thematic

Reliance Pharma Fund 698.45 73.76 46.19

SBI FMCG Fund 210.71 53.87 45.80

Tax Saving Scheme(ELSS)

Franklin India Taxshield 857.46 229.15 28.12

ICICI Pru Tax Plan 1,343.76 149.41 17.06

IDFC Tax Advt(ELSS) Fund 140.77 21.42 10.75 -

Sensex 19781.88

Nifty 5850.70

2.21 5.78 7.42 8.58

0.67 8.70 7.09

4.12 5.54 11.25

0.96 3.09 12.20

0.49 9.78 5.06 14.49

11.67 2.88 12.02

4.49 1.43 10.72

5.78 2.23 13.30

6.22 4.94 14.76

6.51 0.14 10.86

1.19 13.46

0.97 0.98 15.66

3.33 0.29 13.71

11.55 11.42 12.07 25.25

9.63 20.86 21.43 30.16

5.18 3.19 11.44

5.58 1.18 11.32

7.95 1.61

7.73 1.23 6.71

1.11 9.90 1.71 7.15

-2.33

-3.98

-1.41

-4.84

-1.65

-0.27

-5.26

-6.68 -1.29

-6.93

-7.22

-3.18

-2.43

-2.94

-1.07