• Mutual Fund Basics
• Classification of Schemes
• Advantages
• Classification of plans
• Equity/Bond basics
• Taxation
  

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. This pooled money is then invested in capital market instruments such as shares, debentures and other securities depending upon the scheme's stated objective. The investors share the income and the capital appreciations realized from the investments in proportion to the number of units owned by them. Thus, to an investor, Mutual Fund offers an opportunity to earn regular income along with capital appreciation from a professionally managed diversified basket of securities.

Mutual Funds in India are registered with Securities and Exchange Board of India (SEBI) the capital market regulator..

How are Mutual Funds set up?

In India, mutual funds need to be registered with the Securities and Exchange Board of India (SEBI), before they can start collecting funds from (or launching schemes for) the public.

Mutual funds are set up in the form of trusts. These trusts are established by sponsors in the same way as promoters set up companies and are registered under the Indian Trust Act. The trustees hold the fund's property, for the benefit of unit holders, which is managed by the Asset Management Company (AMC). The AMC is a corporate entity established by the sponsors and registered under the Companies Act.

A Custodian holds the securities of a mutual fund schemes. Custodian is appointed by the trustees.

The Trustee Company, AMC and the custodians need to be registered with SEBI.

An individual, body corporate or bank which set up the Trustee Company and the AMC is called the sponsor. The sponsor has to contribute at-least 40% to the net worth of the Asset Management Company.

Mutual Funds offer a wide variety of schemes/funds that are designed to meet an individual's financial needs.Whatever the age, financial position, risk tolerance or expectation of returns be, there are funds to meet investment requirement based on these parameters.

Funds may be broadly classified as open-ended, close-ended or interval funds, based on the frequency of sale or purchase of unit. They may also be classified as equity, debt, balanced or liquid funds, based on the asset in which the investment is made.

An open-ended fund is the one, which is available for subscription all through out the year. These funds do not have a fixed maturity date and an investor can conveniently buy or sell units of these funds at the prevailing Net Asset Value ("NAV"). The key feature of open-ended funds is liquidity.
Close-ended funds Funds with a stipulated maturity period are called close-ended funds. The investments in close ended funds can be made only during the New Fund Offer (NFO) period After the NFO closure date, the units are not offered for sale by the AMC to the investors. However, an AMC may allow a new investor to purchase units from the existing investors.
To provide the liquidity needs of the investors, the AMC might get the units listed on a stock exchange. These units so listed on a stock exchange are traded like any other equity security. The transactions taking place on stock exchange can be at a price, which may be different from the prevailing NAV of the fund.
SEBI regulations mandate that at least one of the two exit routes must be provided to the investors.

Interval funds combine the features of open-ended and close-ended schemes. These funds might trade on the stock exchanges or be open for sale or redemption at predetermined intervals on prevailing NAV.
Classification - Based on asset type
Funds can be classified as growth, income, or balanced funds, based on the assets in which the investment is made.

Debt or Income Funds
The aim of income funds is to provide regular and steady income stream to investors. Income funds generally invest in fixed income securities such as bonds, corporate debentures, government securities (G-Secs) and money market instruments, and are less risky than equity funds. The funds’ NAVs are affected by changes in domestic interest rates and are likely to rise if interest rates fall, or conversely, fall, if interest rates increase.

Balanced funds
The aim of balanced funds is to provide both regular income and capital appreciation to the investors. These funds mainly invest in equity and fixed income securities as per the proportion indicated in the fund’s offer document. The investments are made keeping in mind the risk profile attached with these funds i.e. moderate risk and the tax structure prevalent in the country. Therefore, if the funds with 65 pct or more exposure to equity are exempt from taxes many balanced funds will provide equity exposure of around 65 pct to save investors from paying unnecessarily high tax. These funds’ NAVs are also affected by fluctuations in share prices but are less volatile than those of the pure equity funds.

Money market (MM) or liquid funds
Money Market Funds aim to provide easy liquidity, preservation of capital and moderate income to their investors. These funds generally invest in short-term maturity instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money market based instruments. The returns on these funds do not fluctuate much with the changes in prevailing interest rate in the market.

Gilt funds Gilt Funds invest their corpus in securities issued by Government, popularly known as G-Secs (Government Securities). These Funds carry zero Default risk but carry Interest Rate risk, which generally determines the rate of return on these funds. These funds are safer investment option as they invest in securities backed by Government.

Index funds
Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the S&P CNX Nifty. The portfolio of these schemes will consist of only those stocks that constitute the index and the weightage assigned to each stock will be identical to the stock’s weightage in the index. Hence, the returns from these funds are more or less similar to those generated by the Index and variations, if any, in the percentage change in NAV of the index fund to that of the Index, is measured by tracking error.
There are also exchange traded index funds that trade on the stock exchanges just like equity securities and can be purchased or sold on the exchange at a quoted price just like any other equity security.

Sector specific funds
Sector funds invest only in securities belonging to the sectors or industries specified in the fund’s offer document. The performance of the underlying sector/industry to a major extent influence the returns generated by these funds. Sector funds are riskier as their performance is dependent on one or two particular sector though the same is also responsible for higher returns generated by these funds.

Equity Linked Tax Saving Funds Equity Linked Tax Saving Funds offer tax rebates to investors under specific provisions of the Income Tax Act, 1961. These schemes are popularly called as ELSS (Equity Linked Tax Saving Scheme) and are growth oriented as they pre-dominantly invest in equity instruments. ELSS funds have a three-year lock-in period and carries risk returns profile similar to that of the equity diversified funds.

Theme funds
Theme funds invest in securities that meet a specific criterion or share common characteristics. The theme in case of these funds is clearly, specified in the investment objective of the fund and can take various forms such as special situations funds, future leader’s funds, sustainable development funds, rural India funds, etc.

Fund of funds (FoF)
Fund of Funds are mutual funds that invests in other mutual funds. A fund of funds allows investors to achieve a broad diversification and an appropriate asset allocation with investments in a variety of fund categories that are all wrapped up into one fund. However, if the fund of funds carries an operating expense, investors are essentially paying double for an expense that is already included in the expense figures of the underlying funds.

Value funds
These funds buy stocks of fundamentally sound companies whose shares are currently under-priced in the markets and have run out of favor with investors because of underperformance vis-à-vis the broader market. Value funds generally add dividend paying stocks, which are selling at low price to earning ratio or low market to book value ratio, to their portfolios and hence display major emphasis on financially sound undervalued stocks.

Growth funds
Growth funds generally invest in companies with above-average earnings growth prospects and who reinvest their earnings into expansion, acquisitions, and/or research and development.
Most growth funds offer higher potential capital appreciation but usually at above-average risk. Growth funds are more volatile than funds in the value categories. Investing in growth funds requires a tolerance for risk and a holding period with a time horizon of three to five years.

Professional management
The primary advantage that mutual funds present is that the investor’s money is managed by professionals. Investors purchase mutual fund units because they have neither the time nor the expertise to manage their own portfolios. Mutual funds present a relatively inexpensive way for small investors to get full-time managers to make and monitor investments on their behalf.

Diversification
Diversification involves distributing investments across a large number of assets so that losses from a single investment are mitigated by gains in others. However, small investors do not have enough money to optimize allocation of assets. By pooling their funds with others, investors can benefit from greater diversification, a benefit that is usually available only to investors who are wealthy enough to buy significant positions in a variety of securities.

Economies of scale
Mutual funds buy and sell large amounts of securities at a time, hence their transaction costs are lower than what individuals would have to pay.

Liquidity
Mutual fund units may be bought and sold on any business day. Investors, thus, have easy access to their money. Mutual funds allow investors to convert their units into cash at any time, much like individual stocks do.

Affordability
This is the newly added feature to mutual funds in India. Now a days, even the most humble individual can take advantage of mutual funds; the minimum investment amount through SIP has been lowered to a miniscule Rs.500.

Tax benefits
Currently, Investments held in equity funds for a period of 12 months or more qualify for tax exemption under long term capital gains benefits and in case of debt funds benefits of indexation are available. Other than this, investments in equity-linked savings schemes qualify for tax rebate under Section 80C of the Income Tax Act and dividends are anyways tax-free in the hands of the investors.

Convenience
Mutual funds offer several customer-friendly services. Mutual fund units can be bought or sold by unit holders using mail, telephone, or the internet, facilitating easy movement of money for the investors. Investors can also schedule automatic investments into funds from their bank account, or arrange automatic transfers from funds to their bank accounts. Furthermore extensive recordkeeping services are offered to help investors track transactions, complete tax returns and follow their funds' performance.

Transparency
Regulations binding mutual funds have helped make the industry very transparent. One can easily track investments made by mutual fund schemes month on month, furthermore present value of the investments can be checked daily by tracking the scheme’s NAV.

Variety Mutual funds offer a wide range of products to cater to a variety of investor’s needs. Mutual funds focus on different aspects of investment risk and returns to offer diverse product range, covering blue-chip to small cap stocks, technology stocks to bonds and also various combinations of stocks and bonds.

Mutual Funds: Investment Plans
Mutual Funds offer a variety of investment plans that are designed to cater to a gamut of investor needs. The important investment plans are:

Growth options
Under growth options dividend is not paid out to the investors, instead the investment is kept invested in the stocks or bonds to grow. In case of these funds, the investor realizes capital appreciation by selling the units back to the fund house at the prevailing NAV.

Dividend payout options
Under dividend payout option, dividends are paid out to investors and subsequently the NAV of the fund is reduced to the extent of dividend paid out.

Dividend re-investment options
Here, the dividends that accrue on funds are re-invested back into the fund and the investor is issued additional units proportional to the dividend amount. Unlike the growth scheme, here NAV falls as per the dividend declared but the number of units that an investor has held before increases. In this way investor enjoys returns similar to that of the growth option.

Basics of Equity

There are two ways of buying equity shares:

1. During an initial public offering (IPO), or follow on public offering (FPO).
2. From the Secondary Market i.e. the stock exchanges. An IPO is the company's first public offering of its common shares and the shares so issued are immediately listed (after full subscription of the issue) on stock exchanges. An investor can also buy or sell a listed company's shares from stock exchanges such as BSE or NSE.

Debt versus equity
Bonds, loans and commercial paper are all examples of debt whereas stock or any other security representing an ownership interest is an example of an equity instrument. The important distinction between these two securities is that by purchasing equity (stock) an investor becomes an owner in a corporation and this ownership comes with voting rights and the right to have share in any future profits. However, by purchasing debt (bonds) an investor becomes a creditor to the corporation (or government) and has a higher claim on assets than the shareholders have i.e. in case of bankruptcy, a bondholder will get paid before a share holder get his dues.
Furthermore, a bondholder is not eligible for a share of profits if a company does well - he or she is only entitled for regular interest payment on the principal invested and the principal at the end of the bond tenure. To sum up, there is generally less risk involved in owning bonds than in owning stocks, but this comes at the cost of a lower fixed return.

Why invest in bonds?
As it is clear from the comparison of Debt and Equity that debt instruments like bonds, are relatively less desirable because their share in company's profit is limited only to the stated interest rate and they don't have a share in incremental profit growth. However, this does not mean that an investor should not invest in bonds. Bonds are considered appropriate for investment at all the time, especially if one cannot tolerate the volatility of the stock market. Here are two situations where bond investments are most sought after:

• For Retirement -- The easiest example to think is of an individual living on a fixed income. A retiree simply cannot afford to lose his/her principal, as income from it, is required to pay their daily expenses.
• For Short term investment horizon - Let's say a young executive is planning to go back to college for an MBA in next three years. It is true that the stock market provides the opportunity for higher growth, which is why his/her retirement fund might be invested in stocks, but the executive cannot afford to take the chances of losing the money kept aside for his/her education. Because money is needed for a specific purpose in relatively near future, fixed-income securities are better investment option as interest payment on these securities is fixed.

Bond Basics: Characteristics
The following factors play a significant role in determining the value of a bond and the extent to which it fits in a portfolio.

• Face value/Par value -- The face value (also known as the par value or principal value) is the amount of money a bondholder will get at the maturity date of a bond. The prices of a bond fluctuates, throughout its term, due to number of variables (more on this later). When a bond trades at a price above its face value, it is said to be trading at a premium and when a bond sells below its face value, it is said to be trading at a discount.
• Coupon (Interest Rate on Bond) -- The amount that a bondholder receives as interest payments on his bond investment is generally called as coupon. Most bonds pay interest every six months, but it is possible for them to pay interest monthly, quarterly or annually as well. The coupon is always expressed as a percentage of the par value just like interest rate on loans. For e.g. if a bond pays a coupon of 10 per cent on its par value of Rs.1000, than the interest (coupon) amount for a year will be Rs.100.
• Maturity -- The maturity date is the date in the future on which the investor's principal is repaid. Maturities can range from as little as one day to as long as 30 years. A bond that matures in one year is much more predictable and thus less risky than a bond that matures in 20 years. Therefore, in general, the longer the time to maturity, the higher the interest rate. In addition, all things being equal, a long term bond is more susceptible to fluctuations than a short term bond.
• Issuer -- The issuer of a bond is the one who borrows money for a specific purpose, so he can simply be called the borrower. For an investor, issuer of a bond is a crucial investment factor, as the issuer's stability is the main assurance of getting the money back. For example, the government as a borrower is far better placed than a corporation. The default risk (the chance of the losing money) on government bonds is extremely small and these securities are therefore known as risk-free securities. The reason behind this is that a government will always be able to bring in future revenue through taxation. However, a company must continue to make profits, which are far from guaranteed. This added risk means corporate bonds must offer a higher yield in order to entice investors. Within the corporate bonds universe various risk levels and applicable interest rates are mostly determined by credit ratings which are issued by credit rating agencies like ICRA..
• Bond Basics: Yield, Price
At any time, a bond can be sold in the open market, where the price fluctuates- based on the prevailing yield in the markets.

Let us demonstrate this with an example. If one buys a bond with a 10 per cent coupon at Rs.1, 000 par value, the yield is 10 per cent (Rs.100/Rs.1,000). However, if the price goes down to Rs.800, then the yield increases to 12.5 per cent. This happens because investors are getting the same guaranteed Rs.100 on an asset that is worth Rs.800 (Rs.100/Rs.800). Conversely, if the bond's price goes up to Rs.1,200, the yield on the bond shrinks to 8.33 per cent (Rs.100/Rs.1,200). Note: - the yield here we are talking about is current yield.

Yield to Maturity
When bond investors refer to yield, they are usually referring to yield to maturity (YTM). YTM is a more advanced yield calculation that shows the total return one will receive if he holds the bond until maturity. It equals all the interest payments an investor will receive (and assumes that one will reinvest the interest payment at the same rate as the current yield on the bond) plus any gain (if purchased at a discount) or loss (if purchased at a premium).

The relationship of yield to price can be summarised as follows: when price goes up, yield goes down and vice versa. Technically the bond's price and its yield are inversely related.

Price in the Market
The factor that influences the bond price more than any other factor is the level of prevailing interest rates in the economy. Therefore, when the interest rate rises, the market price of the bonds falls leading to an increase in bond's yield, which is than comparable to higher coupon rates on new bonds. Conversely, when the interest rate falls the market price of bonds rises leading to a decrease in bond's yield, which is than comparable to lower coupon rates on new bonds.

Mutual Funds – Taxation
Mutual funds are tax efficient investment avenues. For instance:
• Dividend income received from the Mutual Fund is exempt from tax in the hands of unit holder.
• No tax is deducted at source for dividend income credited or paid by funds to its unit holders.
• No tax is deducted on capital gains in case of redemptions made by resident unit holder.
• The income earned by the mutual fund is exempt from tax; however, in certain cases this income so distributed to unit holders is liable for dividend distribution tax.
• In case of an individual or HUF, investment of up to Rs. 1 lakh can be claimed as income deduction while calculating taxable income only if the same is invested in Equity Linked Savings Schemes (ELSSs).

Capital gains tax
Investors have to pay capital gains tax only when they realize capital gains i.e. profit on sale of any mutual fund unit. The capital gains can be either long term or short term in nature.

Capital gains are liable to tax based on:
• The duration for which the units of a mutual fund were held prior to redemption
• The manner in which the redemption or switch was effected.

Gains arising on transfer of Units (say by sale/redemption/switch) held for a period in excess of 12 months are classified as long-term capital gains; in any other case, the gains are classified as short-term capital gains.

Long Term Capital Gains:
In case of Equity Oriented Fund:
Under Section 10(38) Long-term capital gains arising on sale/redemption/switch are exempt from Income Tax in the hands of units holders, provided such transaction are entered into a recognized stock exchange or such units are sold to the Mutual Fund and are chargeable to Securities Transaction Tax (STT)
For this purpose "equity oriented fund" means where the investible funds are invested by the Mutual Fund in equity shares in domestic companies to the extent of more than sixty five percent of the total proceeds of such fund set up under a scheme of a Mutual Fund specified under clause 10(23D) of the Act.
However in case of a company, the long term gains shall be taken into account for computation of book profits under section 115 JB of the Act.

In case of Funds other than Equity Oriented Funds:
a) For Individuals and Hindu Undivided Family:
According to Section 112 of the Act, Long Term Capital gains arising on sale/redemption/switch of units of funds other than equity oriented funds are taxable at the rate of 20% (plus applicable surcharge and education cess and Secondary and higher education cess) after claiming indexation benefit.

According to proviso to section 112 of the Act, a unit holder has a option to offer the long term capital gains arise on transfer of units to tax at the concessional rate of 10% (plus applicable surcharge and education cess and Secondary and higher education cess), without claiming any indexation benefit.

In case of an individual or a HUF, being a resident, where the total income as reduced by such long term capital gains is below the maximum amount, which is not chargeable to income tax, then, such long term capital gain shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income tax and the tax on the balance of such long term capital gains shall be computed at the rate of 20% (plus applicable surcharge and education cess) after claiming indexation benefit or 10% (plus applicable surcharge and education cess) as the case may be.

According to proviso to section 112 of the Act, a unit holder has a option to offer the long term capital gains arise on transfer of units to tax at the concessional rate of 10% (plus applicable surcharge and education cess and Secondary and higher education cess), without claiming any indexation benefit.

c) For Non Resident Indians:
Under section 115E of the Act, income by way of long-term capital gains in respect of Units is chargeable at the rate of 20% (plus applicable surcharge and cess). Such long-term capital gains would be calculated without indexation of cost of acquisition. According to the provision of Section 115I, non-resident Indians may opt for computation of long term capital gains as per section 112 of the act, which seems to be more beneficial.

d) For Overseas Financial Organisations, including Overseas Corporation Bodies
Under Section 115AB Long term capital gains arising on transfer of units purchased in foreign currency are taxable at the rate of 10% (plus applicable surcharge and education cess). Such gains would be calculated without indexation benefit.

e) For Foreign Institutional Investors (FII’s)
Under Section 115AD Long term capital gains realised on transfer of Units are taxable at the rate of 10% (plus applicable surcharge and education cess), and the FIIs / sub-accounts will not be permitted to claim indexation benefit.

Short Term Capital Gains Tax:

Equity Oriented Fund:
Section 111A provides that short term capital gains arising on redemption of units of ‘equity oriented funds’ on which STT has been paid are taxable at the rate of 15% (Revised rate in place of 10% as proposed by Finance Bill 2008) plus applicable surcharge and education cess
In case of an individual or a HUF, being a resident, where the total income as reduced by such short term capital gains is below the maximum amount, which is not chargeable to income tax, then, such short term capital gain shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of such short-term capital gains shall be computed at the rate of 15% (Revised rate in place of 10% as proposed by Finance Bill 2008) plus applicable surcharge and education cess

Funds other than Equity Oriented Funds:

In case of an individual or a HUF, being a resident, where the total income as reduced by such short term capital gains is below the maximum amount, which is not chargeable to income tax, then, such short term capital gain shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income tax and the tax on the balance of such short term capital gains shall be computed at the normal rates applicable to the Unit Holders.

SURCHARGE
In case of individual, HUF or association of Persons (AOP), where the income exceeds Rs 10,00,000 a surcharge of 10%, in the case of domestic companies, where the income exceeds Rs 1,00,00,000 surcharge of 10%; in case of foreign companies where the income exceeds Rs 1,00,00,000 surcharge of 2.5% and in the case of an artificial judicial persons a surcharge of 10%. A 3% education cess (inclusive of 1% of an additional cess for Secondary and Higher Education) on total income tax (including surcharge) is payable by all categories of taxpayers.

Tax Deduction at Source
No tax shall be deducted at source in respect of any income credit or paid in respect of units of the Fund as per the provision of section 10(35), section 194K and section 196A.
Under section 195 of Act, tax shall be deducted at source in respect of capital gains as under:

Under section 196B of the Act tax at 10% (plus applicable surcharge and education cess) shall be deducted at source from Long term capital gain on units other than the units of equity oriented mutual funds earned by overseas Financial Organisation including Overseas Corporation Bodies.
Under section 196D of the Act, no deduction shall be made from any income by way of capital gain, in respect of transfer of securities by FII’s as referred to in section 115AD of the Act.

Dividend distribution tax (DDT))
Under the provision of section 115R of the Act, additional income tax is payable at different rates on income distributed to different class of unit holders.

• No dividend distribution tax is payable on income distributed by open ended equity oriented funds.
• Mutual funds which are ‘Money Market Mutual Fund’ or ‘Liquid Fund’ are required to pay dividend distribution tax at the rate of 25% (excluding applicable surcharge @10%, education cess @2% and Secondary and higher education cess at the rate of 1%).
• Mutual funds which are “funds other than a money market mutual fund or a liquid fund” are required to pay Dividend Distribution tax at 12.5% (excluding applicable surcharge @10%, education cess @2% and Secondary and higher education cess at the rate of 1%) for income distributed to an individual or a Hindu Undivided Family. An increased rate at 20% on income distributed to any person other than an individual and HUF (excluding applicable surcharge @10%, education cess @2% and Secondary and higher education cess at the rate of 1%)

Securities Transaction Tax (‘STT’)
As per Chapter VII of Finance (No. 2) Act, 2004 relating to Securities Transaction Tax (STT), The STT shall be collected by the Mutual Fund at source. Securities Transaction Tax (STT) is not applicable in the case of non equity oriented mutual fund scheme.
In case of Units of Equity oriented funds the same is applicable as under:

Taxable Securities Transaction Tax	Rates	Payable by
Purchase of an unit where the transaction for purchase is entered on a recognized stock exchange and the contract is settled by actual delivery / transfer of such unit.	0.125%	Purchaser
Sale of an unit where the transaction for sale is entered on a recognized stock exchange and the contract is settled by actual delivery / transfer of such unit.	0.125%	Seller
Sale of an unit where the transaction for sale is entered on a recognized stock exchange and the contract is settled otherwise than by actual delivery / transfer of such unit.	0.025%	Seller
Sale of derivative being an option where the transaction for such sale is entered into a recognized stock exchange.	0.017%	Seller
However Finance Bill 2008 has proposed the following amendments:
Sale of derivative being an option where the transaction for such sale is entered into a recognized stock exchange w.e.f. 1st June 2008	0.017% of the option premium	Seller
Sale of derivative being an option where option is exercised and where the transaction for such sale is entered into a recognized stock exchange w.e.f 1st June 2008	0.125% of the settlement price	Purchaser
Sale of an unit to the mutual fund	0.25%	Seller

As proposed by Finance Bill 2008, Section 36 (1) (xv), of the Act, Securities Transaction tax paid in the course of business is allowed as a deduction if the income arising from such securities is included in the income from business w.e.f 1st April 2009.

Tax treaty benefits:
Section 90 of the Act provides that taxation of non-resident investors would be governed by the provisions of the Act, or those of a Double Taxation Avoidance Agreement (‘DTAA’) that the Government of India has entered into with the Government of any other country of which the non-resident investors are tax resident. The provisions of the DTAA prevail over those of the Act if they are more beneficial to the taxpayer. The unit holder would be required to obtain a certificate from his / her / its Assessing officer as per section 195 (3) of the Act stating the eligibility for lower rate.

Dividend Stripping
Where a person buys any units within a period of three months before the record date, sells such units within nine months after such date and the income distributed on such units is exempt from tax, the loss on such sale to the extent of the income distributed on units shall be ignored while computing the income chargeable to tax.

Bonus Stripping
Where a person buys units (original units) within a period of three months before the record date, receives bonus units on such original units, and then sells the original units within a period of nine months from the record date and continues to hold the bonus units, then the loss incurred on the original units shall be ignored while computing the income chargeable to tax but shall be deemed to be the cost of acquisition of the bonus units.

Switching from one scheme to another
Switching from one Scheme/option to another Scheme/option will be effected by way of redemption of units of the relevant Scheme/option and reinvestment of the redemption proceeds in the other Scheme/option selected by the unit holder. Hence switching will attract the same implications as applicable on transfer of such units.

Set-off and carry forward of losses The capital loss resulting from sale of units would be available for set off against other capital gains made by the investor and would reduce the tax liability of the investor to that extent. Losses on transfer of long-term capital assets would be allowed to be set-off only against gains from transfer of long-term capital assets and the balance long-term capital loss shall be carried forward separately for a period of eight assessment years to be set off only against long-term capital gains. However, Loss relating to Short Term Capital Asset is to be set-off against gains from Long Term Capital Asset and / or gains from Short Term Capital Assets in the same assessment year. Balance Capital Loss (Long Term or Short Term) which cannot be set-off in the same assessment year is to be carried forward & set-off against gains from Long Term & Short Term Capital Asset respectively.

Wealth tax
Units in the Fund are not treated as 'assets' as defined in section 2(ea) of the Wealth Tax Act, 1957. Hence, they would not be liable to wealth tax.
Please Note

• Please refer to the clause on "Tax Benefits of investing in the Scheme" as disclosed in the Offer Document.
• The tax incidence to unit holders could vary materially based on characterization of income (i.e. capital gains versus business profits) accruing to them in the fund.
• In the context of international investors, there can be no assurance that tax treaty provisions, even if more favorable, will apply in determining their liability to tax in India.
• Tax rates in India may change from time to time. Any such changes may adversely affect the taxation of the fund and / or the unit holders in the fund.
• In view of the particularized nature of tax consequences, each investor is advised to consult his own tax advisor with respect to specific tax consequences of being a unit holder in the fund.