CorporateDividend option for short term, growth for long term
BS Reporter / Mumbai July 05, 2009, 0:42 IST
Since Sebi"s guideline on the removal of entry load came before the closure of the Reliance Infrastructure Fund NFO, should Reliance Mutual Fund charge an entry load from subscribers of the NFO?
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The decision to remove the entry load had come on June 18, while the NFO of Reliance Infrastructure Fund was still on. However, this decision will be effective from August 1. So, Reliance Infrastructure"s NFO was not bound by this ruling. NFOs coming on or after August 1 will not charge any entry load.
If I invest for five to 10 years in an open-ended equity fund, which option between dividend and growth would be better, and why? Does it have any impact on the maturity value?
- P. K. Sahay
The choice of growth or dividend does not make any difference from the pure investment yield point of view. However, there may be different tax implications on the way you choose to receive your gains. Where investment in an equity fund is concerned, the effect of taxation will come into play only if the holding period is short-term i.e. less than 12 months. In equity funds, the dividends distributed do not attract a dividend distribution tax and are also tax-free in the hands of the investor. But short-term capital gains from equity are taxable at the rate of 17 per cent (including surcharge and cess). So, the dividend option would be better, as you can get a part of your gains tax-free in the form of dividends, which in turn reduces your total tax liability.
But in case of a long-term investment in an equity fund, like in your case, the net returns from either of the options would be identical. For the purpose of long-term wealth creation, growth option is better than dividend payout, as your gains remain invested. Conversely, if you want regular cash flows, then you could choose the dividend payout option. I would like to invest in a gold ETF for the long-term, mainly for the purpose of diversification. I have made up my mind to allocate five per cent of my portfolio to this asset class. Could you please let me know the best gold ETFs, with their comparative cost effectiveness and load package?
- Dipinder Kumar
It is a wise decision to allocate just a small portion of your portfolio to gold ETFs. These should not be looked at as a mainstream investment. Currently, there are six gold ETFs operating in the market and they are all alike. They are structured in a way that they generate exactly the same return. The NAV of these funds move according to the market price of gold; less the expenses. All gold ETFs currently charge around one per cent as expenses. So, you may choose any fund and invest in it.
I want to invest in Fixed Maturity Plans (FMPs), but none is on offer since the past two-three weeks. Alternatively, are liquid funds good to park the money till an FMP comes on offer?
- Vilas D. Virdhe
Of late, there has been a decrease in the number of FMPs coming on offer but they do keep coming. There were two FMPs in April, none in the month of May and one in June. Recently, ICICI Prudential"s FMP Series 49-1Y Plan A was open from June 26 to June 29. However, if you want to park your funds till an FMP comes on offer, you may very well opt for a liquid fund. You can get better returns than a savings bank account and also withdraw the money in T+1 day whenever you need to invest in an FMP.
Value Research