Government Takes One More Step Towards Simplifying The Tax Structure Mar 23, 2016

March 23, 2016

In this issue

Government Takes One More Step Towards Simplifying The Tax Structure
Edelweiss Mutual Fund Buys JP Morgan Mutual; Here’s The Impact On Investors

Government Takes One More Step Towards Simplifying The Tax Structure

Impact

Let’s face it! Tax disputes are not new to India. During the budget session, the Finance Minister revealed there are about 3 lakh cases pending with a disputed amount of over Rs 5.5 lakh crore. Tax adventurism and ambiguities involved in deciding the tax liabilities of the assessees have negatively affected India’s investment climate. Being resolute about improving the experience of corporates investing in India, the Government has been working extensively on simplifying the tax structure, making it more investor-friendly.

As a part of this initiative, the Government recently provided clarity on the tax treatment to convertible debentures. So far, there’s been a practice of treating the date of conversion (from debenture/bond to equity) as the time of acquisition of shares, to calculate the holding period for capital gains. However, the lack of clarity about this subject was leading to disputes and Foreign Investors have been demanding clarity on this front consistently.

The Central Board of Direct Taxes (CBDT) has issued a circular clarifying that the tax department would treat convertible debentures and shares as a single security set to calculate the number of days of holding debentures while computing capital gains, instead of treating them as individual securities. This clarification would make the date of conversion irrelevant.

What’s the impact on India Inc.?
Companies often issue convertible debentures to foreign investors to garner money. Companies use convertible debentures and bonds in merger and acquisition cases. As the Government has addressed the concerns of many investors, the sentiment of investors would get a boost. This development will not only help in making India more investor’s friendly, but would also support mergers and acquisition activities that are critical from the viewpoint of consolidation within a particular industry.

Such small but effective reforms may edge India closer to achieving its mission the “ease of doing business”.

Edelweiss Mutual Fund Buys JP Morgan Mutual; Here’s The Impact On Investors

Impact

Market rumours have turned out to be true indeed. JP Morgan is exiting from its mutual fund business in India. PersonalFN informed its investors about the market grapevine on March 11, 2016.

Recently, Edelweiss Mutual Fund acquired JP Morgan Mutual Fund. Although Tata Mutual Fund and Reliance Mutual Fund were in the takeover race for JP Morgan, who manages assets worth Rs 7,000 crore approximately. Clearly, the industry is in the consolidation phase, and those who have deep pockets are surviving. Surprisingly, the total Asset Under Management (AUM) of the Edelweiss Mutual Fund is about 1/4th of those of JP Morgan Mutual Fund.

What existing investors of JP Morgan Mutual Funds should do?

Edelweiss Mutual Fund has showen a mixed-bag performance of its schemes. A few of its funds have done reasonably well, while others have struggled.

Report Card of Edelweiss Mutual Fund

Scheme Name	6 Months	1 Year	3 Years	5 Years	Std Dev	Sharpe
Edelweiss EDGE Top 100 Fund (G)	-3.1	-8.9	15.7	12.3	16.05	0.12
Edelweiss Emerging Leaders Fund (G)	-9.6	-9.9	21.1	12.3	19.40	0.19
Edelweiss Prudent Advantage Fund (G)	-1.7	-2.8	16.5	8.3	14.96	0.14
Edelweiss ELSS Fund (G)	-4.4	-7.3	18.1	12.9	15.90	0.16
Edelweiss Bond Fund (G)	3.7	7.7	7.8	8.1	0.55	0.15
Edelweiss ST Income Fund (G)	4.0	8.4	8.1	8.0	1.69	0.08
NIFTY 200	-1.7	-9.3	12.5	7.8	16.55	0.06
Crisil Composite Bond Fund Index	4.4	8.2	8.9	8.7	4.16	0.07

Data as on march 22, 2016
Returns over 1-Yr are compounded annualised. *Risk is measured by Standard Deviation and **Risk-Adjusted Return is measured by Sharpe Ratio. They are calculated over 3-Yr period assuming a risk-free rate of 7.38% p.a.)
(Source: ACE MF, PersonalFN research)
The performance of equity oriented schemes over a longer period has improved as compared to that of Nifty 200 index. However, fixed income funds have posted mediocre performance as against the Crisil Composite Bond Fund Index over longer time periods. On this backdrop, the acquisition appears to be less worrying; the reason being Edelweiss is going to retain most of JP Morgan’s existing employees.

PersonalFN is of the view that investors of JP Morgan Mutual Fund need not exit their investments at least for six months to 1 year. They should assess the performance of their investments post acquisition. If the performance deteriorates significantly, then a call can be taken at that time.

PersonalFN has always believed that investors need to be very selective about the schemes. Ideally, you should invest in funds that have performed consistently across time periods and market phases. PersonalFN provides unbiased mutual fund research services. Try them out if you find it difficult to select a scheme to invest in.

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