(Issue May 2012 MF Newsletter)
Q1. In the past I have invested in Equity Linked Saving Schemes in order to avail a tax benefit. This year too, while I would like to invest in ELSS, would like to know whether the tax benefit under the Income Tax Act would be extended to me. Earlier I was given to understand that tax benefits may not be extended to investments in ELSS in the year 2012-13; is it really so?
Answer: The exclusion of ELSS from the list of tax-saving options available under the DTC may have led you to think that investment in ELSS made in the present financial year (i.e. 2012-13) does not entitle you to a tax benefit.
But it is noteworthy that, the DTC which was supposed to be rolled out with effect from April 1, 2012, has now been deferred to the next financial year (i.e. from April 1, 2013 onwards) by the Standing Committee on Finance, amid differences on some of the issues. Thus given postponement in the date of implementation of DTC, the current provisions of the Income Tax Act, 1961 would apply, thereby making you entitled to a tax benefit for investing in ELSS in the financial year 2012-13.
However while investing in ELSS, we recommend that you select funds which have completed a 3-Yr track record, and which are consistent performers. Moreover, adopt a prudent approach while you consider investing in ELSS while you intend availing a tax benefit.
Q2. Now that Fidelity has finally sold it mutual fund business to L&T Mutual Fund, would it be wise to invest in Fidelity Equity Fund and Fidelity India Growth Fund; which are some of the good performing funds.
If not, could you recommend me some equivalent funds instead?
Answer: It is true that Fidelity is selling its India mutual fund business to L&T Mutual Fund, but a noteworthy point is that the deal is yet to get regulatory approval. As far the performance of Fidelity Equity Fund (FEF) and Fidelity India Growth Fund (FIGF) is concerned, thus far it has been undeniably appealing.
|Scheme Name ||Sub-category in equity MF ||6-Mth (%) ||1-Yr (%) ||3-Yr (%) ||5-Yr (%) ||Std. Dev (%) ||Sharpe Ratio |
|Fidelity India Growth (G) ||Multi cap ||-1.2 ||-9.2 ||22.2 ||- ||6.31 ||0.24 |
|Fidelity Equity (G) ||Flexi cap || -0.4 ||-8.6 ||22.2 ||8.6 ||6.23 ||0.24 |
|Category average of multi cap funds* ||- ||1.6 ||-8.7 || 19.0 ||5.0 ||6.86 ||0.17 |
|Category average of flexi cap funds* ||- ||1.6 ||-10.0 ||17.6 ||5.5 ||6.71 ||0.17 |
|BSE-200 ||- ||0.4 ||-12.3 ||16.3 ||4.5 ||7.53 ||0.16 |
Note: *Category average has expressed in the form of “simple average” method of calculation
(NAV data is as on April 26, 2012. Standard Deviation and Sharpe ratio is calculated over a 3-Yr period.
Risk-free rate is assumed to be 6.37%)
(Source: ACE MF, PersonalFN Research)
As a part of the deal while it is expected that the marketing and sales team of Fidelity Mutual Fund, may be absorbed by L&T MF; the part of the deal which is not in best interest of its investors is that, its equity fund management team will be retained by L&T MF only till the integration process is on - and not permanently. Fidelity which has worldwide asset management business is keen to retain its equity fund management team which is also engaged in research and fund management of Asia-Pacific region for its parent company.
As Fidelity MF’s well experienced fund management team and strong investment systems and process has been the key to success of Fidelity’s performance so far; the benefit of Fidelity MF’s stringent fund management may not be available to its mutual fund investors in future. Thus given that, it would not be prudent to commit any fresh investment in Fidelity MF schemes.
Given the sub-categories of equity mutual fund schemes which the aforementioned funds are in (as cited in the table above), we think you look at equivalent equity mutual fund schemes in the respective categories. They are:
It is noteworthy that both these funds have delivered a luring performance, and are consistent performers in the respective categories. Disclaimer:
Answers to the queries are based on facts provided and PersonalFN would have no responsibility for the consequences of the outcome based on these solutions. For a detailed analysis of your mutual fund portfolio, please consult a mutual fund advisor.