TYPES OF MUTUAL FUNDS

The mutual fund industry of India is continuously evolving.Along the way, several  industry bodies are also investing towards investors education.Yet very less of our households consider mutual funds as a investment avenue.It is still consider as a high risk option.In fact basic inquiry about the type of mutual funds revels that these are perhaps most flexible, comprehensive and hassle free modes of investments that can accommodate various types of investor needs.

There are wide variety of Mutual Funds schemes that cater to your needs, whatever your age,financial position,risk tolerance and return expectations, Mutual Funds give you the option to invest your money across various asset classes like equity, debt and gold.This allows you to diversify your investments and reduce your portfolio risk.With so many options available in the market, however, it can be confusing to select type of mutual fund as per your financial goal.Here’s look at the some of types of Mutual Funds

1. Types of Mutual Funds on the based on Structure                                                                      1.Open Ended Funds : Open Ended funds are preferred for their liquidity because these funds are  open to purchases and redemption at any time.They do not have a fixed maturity date.Open ended funds are not generally listed on any exchange.Ongoing transactions are based on the net asset value (NAV) of the fund.Hence, unit capital of open ended funds can fluctuate on daily basis.

2.Close Ended Funds : Closed end funds operate for a specific period of time.On specified maturity date, all units are redeemed and scheme comes to a close.It means these schemes have fixed maturity period.To provide a liquidity, these schemes are compulsorily listed on stock exchange  .Investors may buy and sell the units, at the price prevailing in the stock market.

3.Interval Funds : Interval funds are a variant of closed-end funds.They are primarily closed-ended but become open ended at specific intervals.Subscriptions and redemptions allowed at specific intervals during specified transaction period.Minimum duration of interval period has to be 15 days.No redemption is allowed except during the specified transaction period. This schemes have to be mandatorily listed.

2.Types of Mutual Fund on the basis of underlying asset

A Scheme can be also classified as a growth scheme,income scheme or a balance scheme its asset class.Such  scheme may be open ended or close ended as described  earlier.Such scheme classified  as follows :

Equity/Growth Funds : These scheme normally invest major part of their corpus in equity stocks/shares of companies.Such scheme are consider high risk of funds but also tend to provide high return.The aim of these scheme is to provide capital appreciation  over medium to long-term.Equity funds can be further categorized  as –

1.Index Funds :Index funds will only invest in those stocks that constitute a particular index.These funds replicate the portfolio of particular index such as BSE,NSE S&P NSE 50 etc.NAV of such funds would rise or fall in accordance  with rise and fall in index.This would vary as compared to benchmark owing to factor known as a tracking error.

2.Tax Saving/ELSS Funds : These funds offer tax rebate to investor under tax laws prescribe from time to time.Such funds are growth oriented and invest predominately in equities. There is 3 years lock in period in these mutual funds & best suited for long investors  seeking tax rebate and looking for a long term goal.

3.Sector Funds: Sector funds are invest in specific sector like banking, pharma, IT , infrastructure ,etc .or segments of capital like large cap, mid cap,small cap,etc.While these funds may give higher returns,they are more risky compare to diversified funds.Investors need to keep a watch on these funds, much exit on an appropriate time.

Debt/Income Funds : These scheme invest in fixed income securities like a corporate bonds,debentures,government securities, commercial papers and other money market instruments.These funds are less risky compare to equity mutual funds.Such funds are not affected due to fluctuations in equity market.The NAV of the such schemes are affected because of change in interest rate in country.Capital appreciation in such scheme may be limited.The aim of this fund is to provide regular and steady income to investor.Debt Funds can be further categorized as –

1.Liquid/Money Market Fund :These scheme generality invest exclusively safer short term instruments such as treasury bill  ,commercial papers and certificate of deposits.Aim of liquid fund is to enable high liquidity and reasonable return.These funds provide relatively higher safety of principal and liquidity, but the return is also very low.Such funds are appropriate for corporate and individual investors as a mean to park their surplus funds for short periods.

2.Glit Fund :These funds  invest exclusivity in government securities.Government securities have no default risk.NAV of these funds also fluctuate due to change in interest rate and other economic factors as is the scheme with income/debt oriented schemes.

3.Fixed Maturities Plan (FMP) :FMPs, are closed-end debt funds that invest in debt instruments with maturities that match the tenor of the scheme..These have fixed tenure like fixed deposits, though no return is promised or gardened. Securities are redeemed on maturity and proceeds paid to investor.FMPs have to be compulsorily listed on recognized stock exchange.

4.Capital Protection :These are close ended scheme, typically club debt securities with a derivative instrument or equity shares.The primary  objective of this scheme is to safeguard the principal amount while trying to deliver reasonable returns.A large portion of the principal amount is invested in debt instruments.

 

3.Balance Funds :  These are funds that invest in mix of asset classes.In some cases proportion of  equity is higher than debt while in others vice a versa .The aim of balance fund is to provide both growth and regular income.NAV of such funds are likely to be less volatile compared to pure equity fund.These are appropriate for investors looking for moderate growth.

Other Funds :

Exchange Traded Funds (ETF) :ETF is a fund whoes units are trade like stock on the stock exchange.These can brought and sold only in stock market at real time prices which could be different from its unit NAV.You would need demat account to invest in this fund.

Gold ETF : Gold ETFs are exchange traded funds that are mean to track closely the price of physical gold. .Each unit of Gold ETF  lets the investor own 1 gram of gold without physically owing it.With these funds, you are not only relieved of hassles of safekeeping your gold but also assured of purity since these fund invest in certified gold bars.You are also spared of the wastage and making charges that you would typically incur when you buy gold from jeweler You can also get option to convert it to physical gold with selected jwellers..

Fund of Funds (FOF) : FOF invests its corpus in other funds.Its portfolio holds other funds of the same funds house, or other fund houses   These funds have two layers of expenses : one for FOF and the other for the schemes in which it invests. Such funds enables the investors to achieve greater diversification through one scheme.

 

 

 

 

WHICH ITR FORM (FOR F.Y.2015-16) SHOULD YOU SUBMIT ?

 

There are many ITR forms for filing a income tax return such as ITR-1 (Sahaj) , ITR-2, ITR-3 ,ITR -4 and ITR-4S (Sugam), ITR- 5 & ITR-6 and ITR-7.These forms are released every year by income tax department. To file Income tax returns one need to fill the appropriate Income tax return form. Which income tax return form a taxpayer should file depends on tax payer’s income and on the disclosure requirement to the tax payer, where he/she may be resident with foreign income or assets applicable.  So which form should you fill? Due to technical wording it is not easy for common man to select appropriate form. This article explains different kinds of income tax return form and which one to fill. However even after that reading this article any query/doubt is left, then please comment in comment box.

Let’s understand in detail who should file which income tax form forms.

ITR -1 – SAHAJ: FOR SALARIED INDIVIDUALS

This form can be used if you have

  • Salary or Pension Income
  • Income from One House Property (excluding cases where loss brought forward from previous year)
  • Agriculture income which is less than R.5000
  • Income from Other Sources like FD/Shares/NSC etc (excluding Winning form Lottery and Income From House Race)

 

ITR- 2: FOR INDIVIDUALS AND HUF NOT HAVING INCOME FROM BUSINESS OR PROFESSION

This form can be use if you have

  • Salary or Pension Income
  • Income from Multiple Houses
  • Income from Capital Gains
  • An asset in foreign country or income from a source outside India.
  • Agriculture income which is more than Rs.5000
  • Income from lottery & horse racing

 

ITR-2 A: FOR INDIVIDUALS AND HUF NOT HAVING INCOME FROM BUSINESS OR PROFESSION AND CAPITAL GAINS AND WHO DO NOT HOLD FORIGN ASSET.

  • Salary or Pension Income
  • Income from Multiple House Properties
  • Income from Other Sources like FD/Shares/NSC etc.
  • Agriculture income of more than Rs. 5000
  • Income From lottery or house racing

 

ITR– 3: FOR INDIVIDUALS AND HUF BEING PARTNERS IN FIRM BUT NOT CARRING BUSINESS UNDER PROPRIETIRSHIP.

ITR 3 can be filed where taxable business income is only from the salary, interest, commission, remuneration, or bonus receivable from the firm as a partner

 

ITR – 4: FOR INDIVIDUALS AND HUFs HAVING INCOME FROM A PROPRIETARY BUSINESS OR PROFESSION.

ITR-4 form can be used by an assessee who has income form business & profession.(gross receipts 0f more than 60 laces a year) This form covers all kind of business & professions irrespective of any income limit. Assessee can also report income for salary, house property, lottery winnings, capital gains, speculative income i.e horse race in ITR 4 together with Business income.

 

ITR- 4S (SUGAM) : FOR INDIVIDUALS /HUF/PARTNERSHIP FIRMS HAVING INCOME FROM PRESUMPTIVE BUSINESS

ITR 4S form can be filed by an Individuals, HUF or Partnership firms. This form can be used if you have

  • Income from Salary or Pensions
  • Income From One House Property( excluding cases where loss is brought forward from previous year)
  • Income from Other Sources (excluding Winning from Lottery and Income from Race Horses)
  • Income From Business (for small businessman and professionals from business or profession and gross receipts up to 60 laces a year)
  • Agriculture income which is less than Rs.5000.

 

 

ITR-5: FOR FIRMS, AOP’s, and BOI’s

This forms can be used by Firms, Co-operative Banks, Co-operative Societies, Limited Liabilities Partnership (LLP), Association of Persons (AOP), Body of Individuals (BOI), Artificial Judicial Persons.

Applicable for all sources of Incomes.

 

ITR-6:  FOR COMPANIES OTHER THAN COMPANIES CLAIMING EXEMPTION UNDER SECTION 11

Companies other than companies claiming exemption under section 11 are those whose income from property is held for charitable or religious purposes.

 

ITR -7: FOR PERSONS INCLUDING COMPANIES REQUIRED TO FURNISH RETURN UNDER SECTION 139(4A) 0R 139(4B) OR 139(4C) OR 139(4D) OR 139 (4E) 0R 139(4F)

139(4A) – To be filed by every person in receipt of income derived from property held under trust or other legal obligation wholly for charitable or religious purpose.

139(4B)– To be filed by a political party it the total income without giving any effect to the provisions Section 139 A exceeds the maximum amount that is not chargeable to income tax.

139(4C) – To be filed by every scientific research association, news agency, association or institute referred to in Section 10(23A), Section 10 (23B).fund or institution or university or educational institution or any hospital or other medical institution

139(4D)– To be filed by every university, college or other institution, which is not required  to furnish return of income or loss under any other provision of this section.

 

 

COMMON REASONS WHY YOU GET INCOME TAX NOTICE

In recent months, the tax department has stepped up efforts to ensure tax compliance. New rules have been introduced to plug tax leaks and officials are cracking down to evasion. The reason is improved monitoring due to stricter know your customer norms and online filing of returns , both of which have made data processing easier and faster. Many of taxpayers have already received tax notices.

If you have received the income tax notice then there is need to panic .A notice doesn’t essentially mean you have got committed against law and even minor error in legal document will invite a notice from tax department. This are certain measures you need to follow to minimize your chances of getting notice.  Hope you will find this information useful especially individuals who manage their taxes on their own will find it particularly helpful.

COMMON REASONS WHY YOU GET INCOME TAX NOTICE

  1. CHECK YOUR FORM 26 AS (Tax credit statement)

If there is mismatch between the TDS deposited by your employer and income     tax, you may get an income tax notice .26 AS gives the details of the TDS deposited on your behalf .You can view them through NSDL or Income Tax website, or even through your banks online portal

In case, TDS deducted by employer is not reflecting, in your 26 AS, it is better to contact your employer to rectify their TDS return. You should always check your tax credit statement (26AS) online before filing the return

 

  1. ALWAYS FILE YOUR RETURNS ON TIME AND CORRECTLY

A lot of Taxpayers don’t know if they have to file their return. Some believe they can skip filing if TDS has been paid .Others believe that since they don’t have a tax refund to claim ,they don’t need to file a return. Anybody with an income above basic exemption is liable to file his return .According to income tax law if your gross income is Rs.2.5 lakh per year for people below 60 Rs. 3 lakh for senior citizens above 60 and Rs 5 lakh for very senior citizens above 80. The rest of us including NRIs, have to comply.

Non filing returns not a very serious offence if all your taxes are paid. You will only get a notice asking you to do the needful. The tax laws allow taxpayers to file delayed returns even after due date has passed. But you have to pay interest as well as penalty up to Rs.5000.

 

  1. SUBMIT ITR V TO CENTRALIZED PROCESSING CENTER (CPC) BANGALORE

Some taxpayers who file their return online without digital signature think their work is done once the tax return uploaded. They don’t realized that if ITR V is not submitted within 120 days of uploading, the return will be deemed invalid. Please follow the dos and don’ts of sending ITR V to the CPC correctly

 

  1. HIDING A INTEREST INCOME

This is common mistake. Many people knowingly or unknowingly don’t include interest income from their saving account, recurring deposits & fixed deposits in their income .They believed that interest income of upto Rs.10000 is tax free. Actually, the tax exemption of Rs. 10000 a year under Sec 80TTA applies only to interest earned on balance in saving bank account while Interest income from recurring deposits, fixed deposits and infrastructure bonds is fully taxable. In case of fixed deposits & recurring deposits, a TDS will be deducted in case of interest income exceeds Rs.10000 in financial year. But whether the interest income taxable or not, you have to disclose all your interest income in your tax return.

  1. DECLARING EXEMPT (TAX FREE) INCOME

Even through few incomes (like all interest income including saving bank interest) are exempt from taxation, you steel need declare it while filing your returns. You can then claim exemption for the same. Similarly, dividend income has to be reported in the ITR even through it is tax free. This year’s budget has proposed a tax on dividend income if it exceeds Rs.10 Lakh.

  1. MISMATCH IN INCOME AND EXPENSES/INVESTMENTS

If there is mismatch between the income & your investments & expenditure, you are likely to get scrutiny notice. For example if your income in the year is Rs.10 lakh, and you invested Rs.25 lakh, you need to justify the source of funds, the same applies for expense also.

  1. AVOID HIGH VALUE TRANSACTIONS

Any high value transaction (With or without quoting PAN) that you thought you can get away with can invite a notice from income tax department. For e.g. in a year cash deposited Rs.10 lakh or more , investments in mutual funds of Rs.2 lakh or more, investments in share of company of Rs.1 lakh & more, credit card purchases Rs. 2 lakh or more ,or purchase of bonds and debentures worth Rs.5 lakh or more in a year, purchase or sale of property Rs.30lakh or more. To explain the source of income the taxman can you a notice & ask to file a return. So plan this transactions carefully & legally.