market money manager

8/10/2019 market money manager

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The first s tep o f inves ting is to

decide allocation among different

asset classes. Asset allocation is

the most important factor that

determines the performance of a

portfolio. How much you invest in

equity or debt depends on your

stage of l i fe and goals. Once you

have decided the allocation, it is

tim e to s elect pro ducts tha t w o uld

fi t the asset classes you want to

inve st in. To d a y w ith a la rge

p r o d u c t s u i t e a v a i l a b l e t o

investors, this is a point of some

a m ount of confusio n. At an o verall

level , we should consider the

product features, liquidity, costs,

potential risks and tax efficiency

be fore se lec ting the pro duc t.

Anup BagchiM D & CEO

ICICI Securit ies Ltd.

Amongst all the parameters of evaluation, tax efficiency is an

extrem ely im portant a spec t.

Ta x-efficienc y de termines ho w m uch o f a return w e g et to keep a fter

accounting for taxes. Put simply, the net post-tax return. As

investors, our goal should be to maximize the post-tax return of a

po rtfo lio . This ca n be d one throug h se lecting prod ucts tha t are m o re

ta x-efficien t. In g enera l, eq uity-linked prod ucts a re be s t positioned

to provide better post-tax returns over the long run due to their

beneficia l ta x rules .

Keep in m ind, even a sm all a mo unt of tax sa ved to da y ca n m a ke a big

differenc e to our net w orth in the lo ng run. For insta nce , even if w em a na g e to sa ve 15,000 every yea r on taxes, for a perio d of next 25

ye a rs, a nd inves t this am ount, it w ould g row to 16.23 la kh a t 10 per

cent rate o f return. This is the ga in o f o ver 12 la kh o n a n inves tment

o f 3.75 la kh (15,000 X 25 yea rs).

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1ICICIdirect M oney Manager November 2014

Further, when it comes to saving taxes, we realize that certain

deductions and benefits are well known, while others are not. It is

im po rta nt to be co nversa nt w ith tax la w s a nd fully utilize the be nefits

available to us. Our experience is that health insurance tax limitsunder section 80D a re rarely fully us ed a nd thes e a re o ver and a bo ve

1.50 la kh that w e g et under sec tio n 80C. One ca n sa ve m a xim um

up to 40,000 unde r se ction 80D, if a ss es ee and pa rents , bo th a re

se nio r citizens (a bo ve a g e 60 ye a rs).

Even the ta x d ed uctio ns a va ila b le und er section 80C a re ra rely fully

used b y m os t of us. If w e d o so , w e ca n build a siza ble co rpus to m eet

our g oa ls. If w e con sid er tha t a taxpa ye r is sa ving 1.50 la kh per ye a rund er se ctio n 80C in ta x-sa ving ins trum ents from the a g e o f 30 till

the retirem ent a g e o f 60, a nd a ss uming 8 per cent rate o f return, this

a m o unt w ill g row to 1.77 crore. This is the ma g ic of co m po unding .

And if w e m a ke proper as se t alloca tio n a m ong d ifferent ta x-sa ving

prod ucts, the corpus c an g row even b ig g er.

Altho ug h tax-efficiency is im po rta nt, the inves tment dec is ion should

no t be so lely b a se d o n it . Our investm ents sho uld g o b eyo nd just ta xsa ving a nd s ho uld focus m ore o n fulfilling g oa ls.

Last, but not the least, we are in a growing nation with further

po tentia l for a long fores ee a b le future. Therefo re, w e m ust ta ke full

advantage of that and participate and ride the growth through

eq uities , either d irec tly o r throug h o ther ind irec t route o f inves tme nt

products.Investing in equity-related instruments (ELSS) is a good

o ptio n to crea te w ea lth in the lo ng run. With its lo ck-in pe riod o f three

ye a rs, it a llow s us to ride out the inherent vo la tility in the m a rkets a nd

rema in inves ted for the lo ng term. And the ta x bene fit it provide s is

the a dd itio na l cream o n the pie.

Our m es sa g e rema ins the s a m e - 'Keep investing a nd sta y invested

for yo ur life g oa ls'. Throug h this m a g a zine a nd o ur w eb site

w w w.icicidirect .com w e w a nt to ma ke a n ea rnest a t tem pt to partner

w ith yo u in se tting a nd a chieving yo ur fina ncia l g o a ls. Do w a lk into

a ny o f yo ur Neig hbourho o d Fina ncia l S uperstore a nd ta lk to us.

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November 2014


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2

When it com es to inves ting , mo st o f us kno w tha t it is im po rta nt to

look at the real rate of return. Real return is how much our

inves tments ha ve g ro w n o ver infla tio n. The returns a lso need to

be a d justed for ta x to und ersta nd the rea l return in ha nd . Whilethe a ss et cla ss es (eq uity, deb t, etc.) define the rea l returns m o st o f

the tim es , it is the prod uct cho ice , in the s pec ific a ss et cla ss , that

defines the ta x efficiency.

We m ust facto r in the ta x im plica tio ns o f ea ch prod uct, ba se d o n

our personal situations, in order to know what returns we are

likely to g et in. Ta x la w s a nd im plica tio ns kee p c ha ng ing . To help

you get the updated information, we, in our cover story of this

ed itio n, list va rio us investm ents a cros s a ss et cla ss es , in the lig ht

o f tax implica tio ns .

The ed itio n a lso o ffers co m prehens ive informa tio n a nd a na lys is

on ELSS, tax-saving mutual funds, which are best option for

sa ving taxe s a s w ell a s c rea ting w ea lth in the lo ng run. All in a ll,

this issue is a w holeso me tax planning packa g e, w hich w e ho pe,will help you plan your taxes more efficiently and in sync with

yo ur fina ncia l g o a ls.

I would also like to draw your attention to our interview, with

Pankaj Murarka, Head Equity, Axis Mutual Fund, who advises

inves tors to rem a in focus ed o n their lo ng -term a ss et a llo ca tio n.

Further, if yo u w ish to g et cla rity o n d ifferent a spec ts o f perso na l

fina nce o r any o ther m o ney m a tter thro ug h Ask o ur Pla nner, yo u

m a y w rite to us a t mo ney m a nag er @ icicisecurit ies.co m . So rea d

on, stay updated and involved. Do write in with your feedback

a nd sha re yo ur thoughts.

Editor &Pub lisher : Abh isha ke Math ur, CFA

Coordina ting Editor : Yog ita Kha tri

Editoria l Board : Sam eer Chavan , CWM , Panka j Pandey

CMEd ito ria l Te am : Aze em Ahm a d, Nithy a kum a r VP CFP , Nitin Kunte , S a chin J a in,

Sheetal Ashar

ICICIdirect M oney Manager November 2014

Your ma g a zine is no w also a vailab le o n w w w.ma gzter.com , a

dig ital new ssta nd.


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3

M D Desk ...............................................................................................1

Editorial................................................................................................2

Contents.............................................................................................. .3

News.................................................................................................. .4

M arkets Round-up & Outlook .................................................................. 5

Gett ing Technical w ith Dharmesh Shah................................................... 8

Derivatives Strategy by Amit Gupta.......................................................10

Stoc k Ideas: SKF India and L&T .............................................................. 15

Flavour of t he M onth: Tax implications of various investmentsHere w e take yo u throug h the vario us a venues o f investm ents

a cros s a ss et cla ss es , in the lig ht of ta x im plica tions .... . .. . .. . .. . .. . .21

Tte--tte: 'Remain focused on long-term asset allocation'

An inte rview w ith Pa nka j Murarka , Hea d Eq uity, Axis Mutua l

Fund ..............................................................................................34

Ask Our Planner: Sw itching your investment options

Your perso na l fina nce q ueries a ns w ered .... . .. . .. . .. . .. . .. . .. . .. . .. . .. . .. . .36

M utual Fund Analysis: Category - ELSS

Here w e a na lys e to p-performing ELS S funds , w hich a re b es t

o ption fo r sa ving taxes a s w ell a s c rea ting w ea lth in the long

run .................................................................................................40

Equity M odel Portfolio..........................................................................47

M utual Fund Top PicksHere w e present o ur rese a rch tea m 's to p m utual fund

reco mm enda tions, ac ros s eq uity a nd deb t ca tego ries . .. .. .. .. .. .. .52

Quiz Time............................................................................................54

Monthly Trends....................................................................................55

Premium Education Programmes Schedule.............................................58

ICICIdirect M oney Manager November 2014


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4ICICIdirect M oney Manager

No PAN requirement for investment in Kisan Vikas Patra

The Fina nce Minis ter Arun J a itley a nd Comm unica tion Minis ter Ra viS ha nka r Pra sa d relaunched Kisa n Vika s Pa tra (KVP) sc heme. The

Finance Ministry has said that there will not be requirement ofPermanent Account Number or PAN in putting money in relaunchedKVP. It w ill be a va ila ble to the inves tors in the denom ina tion o f Rs . 1000,Rs 5,000, Rs 10,000 and Rs 50,000, w ith no uppe r ceiling on inves tment.The inves tme nt m a de in the ce rtifica te w ill double in 100 mo nths.

Courtesy: The Hindu Business Line

Maintaining a bullish stance on Indian equities, foreign investorsincreas ed their exposure in BS E Se nsex co m pa nies to a n a ll-tim e hig hof 27 per cent in the September quarter, says a report. FII stake inS ens ex co m pa nies ha s b een rising co ntinuously since 2009, the g lob a lfina nc ia l se rvices m a jo r Bank o f Am erica Merrill Lynch s a id in a res ea rchno te, a dd ing the FII sta ke s too d a t an a ll-tim e pea k o f 27 per cent a s o fS eptem ber 30. As o f J une 2014, FIIs co llec tive ly held a round 22.5 percen t of the m a rket a nd a round 46 per cent o f the free flo a t.

Courtesy: The Indian Express

FII stake in Sensex companies hits all-time peak of 27 pct : BofA-M L

Abo ut 80 per cent o f respo nde nts, rea d pa rents, w ho pa rticipa ted in thea nnua l ING Zing survey, sa id they be lieved tha t their child ren follow edtheir m oney ha bits. Even more disc erning is the fa ct that child ren tendto pick parents' spending habits marginally more than their savingha bits, at lea st a m ong those w ho e a rn a bo ve Rs 8 la khs a nnually. Thestudy a lso ob serves tha t as y our inco m e levels g o up, children tend to

develop spending habits more while parents' tend to shore up theirsa vings hab its.

Courtesy: Business Standard

Children mimic parent's money habits, spending event more: ING survey

Negative growth rates in major sectors such as engineering, pharma,g em s a nd jew ellery, an d pe troleum prod ucts sa w the co untry's o verallmerchandise exports shrink 5.04% in October. India's exports haveplunged into the negative zone after a gap of six months. An exportcontraction was last witnessed in March when it fell 3.15%. Coupledwith the largely unexpected decline in exports, a surge in imports ofg o ld kept the trad e d eficit at $13.35 billion in Octo ber a g a ins t the $10.59billion a ye a r ea rlier. The deficit w a s tha nkfully a bit low er tha n tha t inS eptem be r w hen it sto od a t a n 18-m on th hig h o f $14.24 billion.

Courtesy: The Financial Express

October exports shrink 5% after a gap of six months

November 2014


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M ARKETS ROUND-UP

M arkets to take cues from reforms and CPI data asQ2 season comes to end

October month was a ta le oftwo halves with the first half

showing weakness while the

s e c o n d h a l f s a w a s h a r p

recovery with global

commodity prices correcting

sharply and an improvement

in global cues. A drop in

m a n u f a c t u r i n g P M I

(Purchasing Managers' Index)

on a month-on-month (MoM)

basis coupled with muted

g lo ba l cues led to the slug g ish

start to the month. Lower

indus tria l pro ductio n d a ta a lso

de nted the m a rket co nfid ence .

The c o ns um er price inde x

(CPI) for September 2014

cooled off to 6.5% vis--vis

7.8% in August 2014 (the

lowest value in the last 22m o nths). The WPI (w ho les a le

price index) was also lower

a nd c a m e a t its five-ye a r lo w o f

2.4%. The decline in both CPI

and WPI was cheered by the

markets as expectations of a

policy rate cut by the ReserveBank of India (RBI) in its next

monetary policy in the first

w eek of Decem ber resurfa ced

a g a in. The sentim ents a lso

im pro ved in the se co nd ha lf ofthe month on the back of a

drastic decline in crude oil

price s to ~ $85/b a rrel a nd

po sitive cues fro m a ro und the

globe at the fag end of the

month as Bank of Japan's

M o n e t a r y P o l i c y B o a r dunexpected ly d ecide d to raise

t h e m o n e t a r y b a s e a t a n

a nnua l pa ce o f abo ut 80 trillio n

Yen.

The Q2 ea rning s se a so n in

October also influenced theperformance of the markets.

The ba nking se cto r co ntinued

to sho w a n im prove m ent in the

operational performance with

bo th priva te a nd public s ecto r

banks improving sequentially.

C o n s u m e r d i s c r e t i o n a r ystocks continued to show an

improvement in operational

performance, especially the

auto sector, which showed

p o s i t i v e e a r n i n g s l e d b y

volume growth on improved

s e n t im e n t s a n d f e s t i v ed em a nd . The FMCG (fas t

m o v i n g c o n s u m e r g o o d s )

s e g m e n t , h o w e v e r ,

November 2014


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M ARKETS ROUND-UP

d i s a p p o i n t e d a s v o l u m e

growths continued to remain

low. The IT ( Informat ion

Te c h n o lo g y ) p a c k h a d adisa ppointing ea rning s sea so n

mainly driven by an

unfa vo ura ble currency im pa ct.

Pharmaceut ica l companies ,

on the other hand , ha d a m ixed

ba g w ith a po sit ive b ia s.

The g lo ba l m a rkets ha ve b een

driven by contrasting news

flows across the globe. Post

the disappointing industrial

output da ta from G erm a ny, the

German government had cut

the growth estimate for thisyea r a s w ell a s the next yea r to

1.2% and 1.3%, respectively.

The m a rket sentim ent further

deter iora ted as the

International Monetary Fund

(IMF) cut its g lo ba l g row th

forecast to 3.3% from 3.4%,the third such revision in the

yea r. The decline in c rude o il

continued unabated in the

month c lear ly highl ight ing

g ro w th co ncerns. The m a rket

sentiment, however, received

a boost as the Federal OpenMarket Committee (FOMC)

m e e t i n g e n d e d w i t h t h e

minutes revealing the dovish

sta nce o f the Fed o n the po licy

rate front, even as the

Q u a n t i t a t i v e E a s i n g ( Q E )

prog ra m me ende d. At the endof the month, the Bank of

J apa n unexpectedly surprised

the markets with a spurt of

mo netary ea sing.

D u r i n g t h e m o n t h , c r u d e

(Brent) continued the decline

a nd end ed a t ~ $85/ba rrel. The

t r e n d c o n t i n u e d i n e a r l y

November as well, with crude

reaching the lo w s o f $81.

The US m a rkets c o ntinued to

trade with a negative biasthrough the month but ended

w ith a strong po sitive b ia s po st

the announcement from the

Ba nk o f J a pa n. Ma jo r indices ,

Dow J o nes , S &P 500 a nd the

Nasdaq gained about 1.9%,

2% and 2.8%, respectively.

European markets, however,

rem a ined w ea k de spite the la te

surg e in the ind ices in the la st

tw o se ss io ns w hile the FTS E

lo st 2.8%. The G erm a n Da x

a nd French CAC lo st 3.3% a nd

5 % , r e s p e c t i v e l y . A s i a n

m a rkets, a lso g a ined in the la st

two sess ions to end on a

po s itive no te w ith the Nikkei

Global markets

November 2014


9/63


M ARKETS ROUND-UP

and Shanghai SSEC gaining

0.6% and 2.6%, respectively,

w hile the Hang S eng posted a

g a in o f 3.3%.

T h e f o r e i g n i n s t i t u t i o n a l

investors (FIIs) continued to

rema in net b uye rs in the Ind ia n

m a rkets a lthough the pa ce ha s

cons iderab ly s lowed downove r the past co uple o f mo nths

a n d the ne t b uy fig ure w a s ~

900 crore while domest ic

institutional investors (DIIs)

heavily bought to the tune of

~ 5,700 crore led by s trong

i n f l o w s i n t o m u t u a l f u n dschemes.

The Nifty a nd S ense x end ed

firmly in the positive territory

for the month wi th mos t

sectoral indices also ending

the m o nth in the g reen. Except

BSE Realty (-1.8%) and BSE

FMCG (-1.8%), a ll othe r ind ice s

ended October on a s trong

no te. BS E Ba nkex, BS E Pow er,

BSE PSU, BSE Auto and BSE

Oil sa w sha rp g a ins o f 10.7%,

9.5%, 7.2%, 4.7% and 4%,

respec tive ly, w hile BS E IT a nd

BSE Healthcare ended the

m o nth fla t.

Domestic markets

Outlook: Post Q2 numbers, focus

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shifts to government reforms and

RBI policy

As the earning season comes

t o a n e n d w i t h o u t m u c h

surprise (neg a tive o r positive),

the markets will eagerly look

towards government reforms

as well as the RBI's policy

stance (next policy meet on

e c e m b e r 2 ) . I n o r d e r t o

exped ite the reforms pro ces s,

the Mod i g o vernm ent initia ted

the much awaited portfolio

e x p a n s i o n b y i n d u c t i n g

t e c h n o c r a t s a n d c a d r e

workers in the Cabinet. After

the clear mandate for the BJPin Harya na a nd the eme rg ence

a s t h e l a r g e s t p a r t y i n

Maharashtra, this expansion

will be construed as a step in

the rig ht d irectio n a nd is likely

to b e chee red by the ma rkets.

F a l l i n g c r u d e p r i c e s a n dimproving CPI numbers are

likely to add to the buoyancy

w i t h h o p e s o f d o v i s h

comments by the RBI in its

next pol icy meet . In this

scenario, markets are likely to

pa y les s a ttentio n to the g lo ba lc u e s a n d f o c u s o n t h e

do m es tic situatio n.

November 2014


10/63


TECHNICAL OUTLOOK

Bulls reign supreme; index eyeing 28800

Benchmark indices overcame

huge bouts of volatility amid

weak global cues owing to

worries about global growth

and the end of years of US

s t imulus . Af te r d i sp lay ing

resilience in the face of a

volatile global environment,

m a r k e t s e n t i m e n t s w e r e

boosted by reform measures

announced b y the go vernmenta nd a stro ng verdict in the state

a s s e m b ly e le c t io n s . Th e

b e n c h m a r k s ( S e n s e x a n d

Nifty) staged a firm rebound

precise ly fro m the clo se to o ur

earmarked support zone of

26,000/7,800 leve ls a nd surg edto new a ll-tim e h ig hs in line

w ith our expecta tio n.

The d a sh tow a rds new a ll-tim e

highs after one month

corrective phase signals

r e s u m p t i o n o f u p w a r d

mo m entum a fter a brief pause.G o i n g f o r w a r d w e e x p e c t

benchmarks to remain in a

r is ing t ra jectory and head

to w a rds 28,800/8,650 leve ls

o ver the m ed ium -term. TheO c t o b e r 2 0 1 4 l o w o f

25,910/7,723 w ill a ct a s a key

shor t - t e rm base for the

markets.

The dec line unfo ld ing s ince

hitting the September 2014

high o f 27,354/8,180 disp la yedall the signs of a healthy

corrective decline within an

established uptrend and re-

affirmed the overall positive

p r i c e s t r u c t u r e a s i n d e x

retra ced its 25-se ss io n d ec line

in just 8 tra d ing se ss io ns .

The reso lutio n pa st S eptem ber

2014 highs opens target of

28,800/8,650 be ing the depth

of the September correction

(27,354-25,910) as projected

above September 2014 highs

ove r a m ed ium term .

Sectorally, the banking index

resumed its leadership role

a nd ven tured into n ew a ll-tim e

h i g h s a h e a d o f t h e

b e n c h m a r k s . W e e x p e c t

b a n k i n g t o l e a d t h e

benchmarks, going forward.

The a uto a nd ca pital g oo ds

sectors are also expected to

outperform in the coming

month.

November 2014


11/63

2976 pts

3098 pts

21

w eek EM A

Extended rally measuring

3244 pts so far


TECHNICAL OUTLOOK

BSE Sensex Weekly Candlestic k Chart

S ource: Bloo m berg, ICICIdirect.com Rese a rch

The view s express ed in the article a re perso na l view s o f the author a nd d o no t neces sa rily

represe nt the v iew s o f ICICI S ecurities .

Weekly RSI tested its own

rising trend line support

along w ith price ap proa ching

its key support of 26000levels a nd produced a strong

pullback indicating strength

in the up mo ve

November 2014

Index concluded a month long

corrective phase and signalled

r e s u m p t i o n o f u p w a r d

momentum by recouping its last

falling se g m ent in fa ste r tim e. We

expect the index to remain in

r i s i n g t r a j e c t o r y a n d h e a d

towards 28800 over the mediumterm


12/63


DERIVATIVES STRATEGY

Nif ty to move tow ards highest call base of 8500

Amit Gupta

Head - Derivat ives Research,ICICI Securit ies

Nifty recovered sharply in the

second half of the October

series and is currently tradingclose to 8400 levels. At the

sa me tim e, strong g lob a l cues

co upled w ith susta ined foreig n

institutional investors' (FII)

interest in the equities also

helped Nifty to sca le ne w hig hs

a nd Nifty is likely to hit ta rge t o f

8500.

Open interest in Nifty futures

has risen to 1-year high and it

a lm o st tes ted 25 m illio n sha res

during the series. FIIs have

bo ug ht m o re tha n 11,000crore since October 17 when

Nifty made the low of 7730.

Lo o king a t the significa nt b uild-

up of positions, a round of

profit bo o king ca nno t be ruled

o ut. How ev er, Nifty is likely to

find b uying s upport o nce a g a innea r its prev io us h ig hs o f 8200

which also coincides with the

hig hes t Put o pen interest b a se .

On h ig he r side , 8500 ca ll s trike

`

h a s s e e n c o n t i n u o u saccumulation, which remains

the ta rg et.

November 2014

Option open interest of November Series

0

50000

100000

150000

200000

250000

7800 7900 8000 8100 8200 8300 8400 8500 8600 8700 8800

OI(No.

ofContracts)

Put OI Cal l OI

Bank Ni f ty: l ikely to move

to w a rds ta rget o f 17500/17800

The Ba nk Nifty w a s the key

ca talyst in the current up -leg o fthe Nifty. Pos t the co o l-o ff see n

in consumer price index (CPI)

and wholesale price index

(WPI) read ings the index

roc ke ted 1400+ po in t s to

16600 leve ls .

The b a nking spa ce a lso g o t a

push from bond yields. Yields

cam e d ow n to a 13-mo nth low

of 8.32 (10-year government

security (G -S ec )).

With m o st priva te sec tor ba nks

reporting stronger net interestmargins (NIMs) and profit

marg ins , there i s a c lea r

preference for private sector


13/63



November 2014

b a n k s o v e r p u b l i c s e c t o r

ba nks. This bo des w ell for the

banking index , a s p r iva te

banks have more than three-f o u r t h w e i g h t a g e i n t h e

ba nking ind ex.

S ince the e lec tio n ve rd ict, this

space has been re l a t ive ly

under-owned. Until recently,

mo st stocks w ere s trugg ling totake out their election verdict

highs. Sticky inflation was one

of the key reasons for this.

However, as inflation cooled-

off sharply during the month

co upled w ith a w ea k se t of Q2

n u m b e r s f r o m t e c h n o l o g ymajors, banking stocks are

back in favour. Banking stocks

are likely to move up in the

com ing m onth w hile the s hort

open interest (OI) in many of

the stocks is still high and is

seeing a rollover of these

positions into the November

series.

Looking at the options build

up, the highest Cal l base

remains the target for the

index, which is a t 17500follo w ed by 18000 strike. On

the lower side, support is

pla ce d a t 16000 levels, w hich is

the hig hest Put ba se.

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

15500

15700

15900

16100

16300

16500

16700

16900

17100

17300

17500

Cal l OI Pu t OI

India VIX: Likely to consolidate

a bo ve 10.5 a s g eo -po litica l a nd

economic risks stay elevatedglobally

O n e x p e c t e d l i n e s , I n d i a

Vo la tility Ind ex (VIX) sa w a

jum p o f 30% to 17 levels a s the

Nifty fell on the back of weak

g lob al cues. How ever, tow ardsthe month end, as markets

reco vered, the fea r g a uge a lso

cooled-off.

Going ahead, as geo-political

risks and global market jitters

remain alive, the VIX could

r e m a i n h i g h e r a b o v e i t s

extrao rd ina ry lo w leve ls o f 10.5

se en in S eptem be r.

On a po sitio na l ba sis, the 50 &

100 w eek m o ving a verag e is a t

18.2. This level is likely to be

tested o nly in the eve nt of the

Nifty rea ch ing 7800.


14/63



November 2014

S&P 500: Current momentum likelyto continue above 1980 levels

After witnessing the worst

se lling press ure o f la st 3 yea rswhich eroded almost 10%

value, the recovery was even

m o re prom inent a s S &P 500

surpas sed its hig hes t Ca ll ba se

o f 2000 strike to m a ke a new life

high. We expect the current

momentum is unlikely to fadeo ut until S &P m o ve below 1980

levels o nce a g a in.

Even fo r co m ing up Decem be r

series, the highest Call option

base is placed at Call 2000

s t r i k e a l o n g w i t h t h e

n o t e w o r t h y P u t b a s e . W eexpec t S &P to co ntinue its

momentum on the back of

stuck up Call writers. Only a

move below 1980 levels is

likely to change the ongoing

trend.

Unlike the previo us pull ba cks,

S &P 500 Ind ex ha s fo und

suppo rt of sm a ll-ca p s tocks a s

w e l l s u g g e s t i n g b r o a d e r

pa rticipa tio n in the m o ve.

Russell 2000 Index has erased

all of its declines in the recent

bounce back, which was not

seen previous pull backs as

R u s s e l l I n d e x h a s u n d e r

pe rformed S &P500.

S &P has sho w n tendency of

moving towards its 50-DMA

(displa ced m o ving a verag e) inca se o f any interm ed ia te pro fit

bo o king . Currently 50 DMA for

S &P is pla ce d nea r 1980 levels

w hich m a kes it buying leve l o n

declines.

S&P500 options open interest for December Series

0

20000

40000

60000

80000

100000

120000

140000

160000

1940

1950

1960

1980

2000

2020

2040

2050

2075

2090

2100

Cal l OI Pu t OI

Dax: Immediate support is placed at 9200

The G erma n Inde x, Dax, ha s

underperformed most of itspee rs a s it is still tra d ing belo w

its b rea kdo w n levels o f 9600.

Despi te a thousand points

recovery, under-performance

can largely be attributed to

w e a ke n i n g c u r r e n c y o fEurozone.

Th e h i g h e s t P u t b a s e o f

G erma n Ind ex is p la ced a t 9000


15/63



November 2014

strike for December series

w hich is likely to rem a in c rucia l

support for the index in the

near term. At the same time,Call base is placed evenly

above 9500 strike. Hence a

m ove a bo ve 9500 m ay induce

fres h m o m entum in the DAX.

Importantly, both 100 and 200

DMA levels for German Indexare placed in the vicinity of

9 5 0 0 s t r i k e i n d i c a t i n g

immediate resistance for the

index. Hence, fresh upward

bias is expected if DAX is able

to sus tain ab o ve these levels.

Unl ike the res t o f equi ty

markets, volatility index for

G erma n Ind ex is s till a t hig her

at 16.5. US VIX is near 12.7

w hile Ind ia Vo la tility Ind ex is

ne a r 14 leve ls . Hig he r vo la tility

i n d e x i n D A X i n d i c a t e sprevailing skepticism in the

G erma n m arkets.

DAX option open interest for Decem ber Series

0

10000

20000

30000

40000

50000

60000

8900

9000

9100

9200

9300

9400

9500

9600

9700

9800

Dollar Index:Likely to surpass 2008

highs tow ards our immediate target

of 90

As expected, Dollar Index did

not m ove below 84 levels a nd

r e s u m e i t s u p w a r d t r e n d

t o w a r d s s u r p a s s i n g i t s

previous highs. Along with

s t r e n g t h i n d o l l a r ,

simultaneous selling pressurein the US Bonds suggests

money f low from safer assets

t o r is ky a s s e t s d u e t o

e x p e c t a t i o n s o f s u s t a i n e d

liq uid ity flo w.

The Do lla r Ind ex in the la s tcouple of months has moved

up sharply and posted the

highest quarterly gains since

2008. The prim a ry m o ve fro m

80 to 85 in Dollar Index was

trig g ered b y w ea kness in Euro .

S ta tements f rom European

Central Bank (ECB) hinted at

further expansion of balance

she et, w hich trig g ered a no ther

round of weakness in Euro

currency. We expect Euro to

remain weak and test 2010lo w s o f 120 in da ys to co m e. At

the sa m e tim e, co upling effect

was observed f rom Japanese


16/63



November 2014

Yen, which is at the highest

levels s ince 2008.

Both Euro a nd J apa nese Yen

cumulatively holds more than

70% w eigh t in the Do lla r ind ex,

given the weakness in the

major currencies, we expect

Do lla r ind ex to surpass its 2008

h i g h s o f 8 9 . 5 a n d m o v e

tow a rds 90 in the nea r term .

Brent Crude: Dow nsides likely toextend for t arget of 78/75 levels

As expected, Crude failed to

w i t n e s s a n y m e a n i n g f u l

reco very a nd hovered ne a r 80

levels for most part of the last

m o nth. The Put ba se pla ced a t

85 s t r ike remained major

hurdle fo r Crude a nd it failed to

susta in ab o ve these levels.

As per U.S . CFTC (Co m m o dity

Futures Trad ing Co m m iss io n)

data, net long positions in

Brent Crude have declined

sharply to 60,000 contracts

fro m 240,000 co ntrac ts s ee n in

the J une se ries . The currenttrend of long liquidation is

likely to continue in the Brent

and declines are likely to get

extended.

Alo ng w ith spec ula tors, Hed g e

position holders for Brent are

still bearish as almost 39%

posi t ions a re s t i l l hedged

a g a inst further de cline. De spite

Crude trad ing nea r 4 yea r lo w s,

s u c h a h i g h h e d g i n g

p e r c e n t a g e i n d i c a t e s

skepticism prevailing for thecrude prices.

Recent declines have forced

crude to breach its three-year

consolidation range. It may

eventually find support at its

J uly 2010 brea ko ut levels o f

$78. Hence, our downsidepositional target in Brent is at

$78.

Crude option open interest for December Series

0

4000

8000

12000

77

78

79

80

81

82

83

84

85

86

87

Cal l OI Pu t OI

The view s express ed in the article a re perso na l view s o f the author a nd d o no t neces sa rily

represe nt the v iew s o f ICICI S ecurities .


17/63

15

STOCK IDEAS

SKF India: Leader in the Bearings space

ICICIdirect M oney Manager

Company Background

Incorporated in 1961, S KF Ind iais the Indian subsidiary of the

Sweden based SKF Group,

which is a global leader in

b e a r i n g s , s e a l s a n d

m e c h a t ro n ic s & lu b ric a t io n

sy stem s. The com pa ny is a

leader in the Indian bearingm a rke t w ith ~ 28% m a rke t

share. SKF is well-diversified

across the automotive (54% of

revenues including exports,

which are manufactured in

India) and industrial segment

(46% of revenues, which aremainly imported from SKF

Group companies) as well as

S K F Te c h n o l o g i e s ( t h e

sub s id ia ry o f the pa rent). In the

a utom otive se g ment, SKF India

ca ters to bo th tw o -w heelers a s

we l l as four-whee lers (PV

( p a s s e n g e r v e h i c l e s ) , C V(co mmercia l vehicles ), tra cto rs,

etc.) of which two-thirds come

f r o m o r i g i n a l e q u i p m e n t

m a n u f a c t u r e r ( O E M ) a n d

r e m a i n i n g f r o m t h e

repla ce ment m a rkets . S KF Ind ia

ca ters to a lm os t all a utom otiveOEMs in Ind ia such a s Ta ta

Moto rs, Hero MotoCo rp, HMS I,

Maruti, Bajaj Auto, Mahindra &

Mahind ra, TVS , Bo sch, etc . In

the industrial segment, SKF

India supplies to all majorindustries like heavy industries

such as s tee l , mining e tc ,

a g r i c u l t u r e , p o w e r , c a p i t a l

go ods , o il & ga s and food &

b e v e r a g e (F &B ) . W i t h i n

indus tria l, ~ 65% pertains to

aftermarket and 35% to OEMs.Its clientele includes: heavy

industries: SAIL, Coal India,

J S W, Essa r, Ta ta S teel; energ y:

NTP C, Ta ta Po w er, S uzlo n;

industrial machinery: Bhel, GE,

L&T; o il &g a s : Relia nc e, ONG C,

Ca irn India ; F&B: Nes tl, ITC,

Pepsi. SKF India has threemanufacturing facilities: Pune,

Ha ridw ar a nd Ba nga lore.

Leading bearing manufacturer w ithequal presence in industrial & auto

SKF is the leader in the Indianbearing market (pegged at

8,000-8,500 crore) w ith ~ 28%

share. Known for deep groove

ba ll be a ring s (forming ~ 35% of

revenues a nd ~ 45% ma rket

share), SKF is equally present

across the industrial (46% of

s a l e s ) a n d a u t o m o t i v e

s e g m e n t s ( 5 4 % o f s a l e s

i n c l u d i n g e x p o r t s ) . W i t h

expected industrial revival and

Investment Rationale

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November 2014


18/63

16

STOCK IDEAS


up-tick in auto demand going

ahead, SKF is well poised to

capture the opportunity given

its strong balance sheet withc a s h f l o w g e n e r a t i o n a n d

s c a l a b i l i t y b a n d w i d t h . W e

expect revenues to grow at

13.3% compounded annual

g row th ra te (CAG R) over CY13-

16E to 3,266 cro re.

Early signs of recovery seen in auto,SKF to be key benef ic iary

For year-to-date (YTD) Cy14,

the auto sector has show n sig ns

o f re c o v e ry w it h ~ 12. 3%

growth (mainly driven by two

w h e e l e r s e g m e n t g r o w t h ,

which was up 16.3% year-on-year (YoY)). With the auto

indus try fina lly s how ing sig ns of

reco very a fter nea rly tw o y ea rs

o f a d e m a n d s l u m p , n e w

la unches a nd prod uct refreshes

a re the key, go ing a hea d . S KF,

be ing the l a rges t bear ings

player in the industry,

c o m m a n d s s c a la b i l i t y

bandwidth coupled with a lean

ba lance sheet a nd is po ised to

ca pture the o ppo rtunity a rising

from the revival in demand in

the automotive segment. We

expect SKF's manufacturedproduct (auto) sales to exhibit

~ 14.6% CAG R ove r CY13-16E,

in line with overall auto growth

assumptions.

`

Localisation of industrial bearing toboost margins & market share

Industrial bearings (46% of

revenue s) a re so urced from thep a r e n t (~ 9 0 %) a n d S KFTe c h n o lo g ie s . We e x p e c timpo rt sub s titution o f indus tria lbearings, through ramp up inS KF Tec hno log ies , to be a keyr e v e n u e d r i v e r f o r S K F ' sr e v e n u e s a n d m a r g i ne x p a n s i o n a s S K F w o u l dimprove its turnaround timewhile the resultant cost savingwould lead to market shareg a ins. Conse q uently, w e expectindustrial (traded goods) salesto grow at 11.6% CAGR over

CY13-16E w ith ove ra ll EBITDAma rgins reco vering to 13.7% inCY16E vs . 11.5% in Cy13.

Premium valuat ions dr iven bygrow th prospects ahead

SKF is trading at 20.8x CY16EEPS. Given SKF's leadership

position in the bearing space,strong earnings growth (CAGRof 24% in CY13-16E), healthyba la nce sheet w ith rob ust cas hflow ge nera tion ( 680 croreover CY14E-16E) and corereturn o n eq uity (RoE) in exce sso f 30%, w e a s crib e a P /Emultiple o f 24x (implying a PEG(Price /Earnings to G row th) o f1x) on CY16E EPS . Hence , w eassign a target price of1,448/sha re w ith a BUY ra ting .

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November 2014


19/63

17

STOCK IDEAS


Key risks inc lude:J apa nese co mpetit ion w hich ma y thw art ma rket share,S ustained slow do w n in key s eg m ent, Ra w m a teria l co st rise , Dela y in

S KF Techno log ies ra m p up ma y d ela y loca lisa tion process a nd Forex

Risk impa ct o n fina ncia l performa nce .

(EBITDA:Earnings before interest, taxes, depreciation, and amortization; EPS:Earnings per sha re; P/E:Price -to -ea rning s; EV:Enterprise va lue; RoNW:Returnon net worth; RoCE: Return on Capital Employed; FII: Foreign InstitutionalInvestors; DII:Do m es tic Ins titutio na l Inves tors)

Key Financials

Valuations Summary

Stock Data

November 2014

Net s ales ( cro re) 2,246.4 2,446.8 2,802.4 3,266.5

EBITDA ( crore) 261.4 318.9 376.2 453.1

Net pro fit ( cro re) 166.7 223.4 263.6 318

CY13 CY14E CY15E CY16E

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`

`EPS ( ) 31.6 42.4 50 60.3

P/E (x) 39.7 29.6 25.1 20.8

Ta rg et P/E (x) 45.8 34.2 28.9 24

EV /EBITDA (x) 23.9 19.2 16 12.9

P/BV (x) 5.2 4.7 4.2 3.7

Ro NW (%) 13 15.9 16.7 17.6

Ro CE (%) 16.6 18.9 20.2 21.7

CY13 CY14E CY15E CY16E

Ma rket ca pita liza tion ( cro re) 6,620

To ta l debt (CY13) ( crore) 0

Ca sh a nd inves tm ents (CY13) ( crore) 376

Enterprise va lue ( crore) 6,244

52-w eek Hig h/Lo w ( ) 1,248/511

Eq uity ca pita l ( crore) 52.7

Fa ce va lue ( ) 10

FII ho ld ing (%) 15.5

DII ho ld ing (%) 17.1

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20/63

18

STOCK IDEAS


L&T: Best w ay to capture capex recovery cycle

Company Background

Investment Rationale

After being incorporated in1938, La rsen & To ubro (L&T)h a s c o m e a l o n g w a y t ob e c o m e I n d i a 's l a r g e s tengineering and construction(E&C) co m pa ny. The co m pa nyh a s b u s i n e s s i n t e r e s t s i n

e n g i n e e r i n g , c o n s t r u c t i o n ,manufac tur ing , in format iont e c h n o l o g y a n d f i n a n c i a ls e r v i c e s . C o n s i d e r e d t h eb e l l w e t h e r o f t h e I n d i a ne n g i n e e r i n g s e c t o r , i t i sr e n o w n e d f o r i t s s t r o n gexecu t ion capab i l i t i e s andp r o f e s s i o n a l m a n a g e m e n t .The compa ny com ma nds adominant presence in India'si n f r a s t r u c t u r e , p o w e r ,hydrocarbon, machinery andrailw a y rela ted projec ts. With ac u s t o m e r b a s e s p a n n i n g

a c r o s s 3 0 c o u n t r i e s , t h ec o m p a n y h a s s i g n i f i c a n t l yincreased its global footprint,a long w ith a nota ble presencein t h e M i d d le E a s t . Th ec o m p a n y o p e r a t e s a c r o s sdif ferent business vert icalst h r o u g h t h e i n d e p e n d e n tcompanies .

Proxy play on India Infrastructurestory

L&T is the m o st d ive rsified

eng ineering & infra structurede velo per in the co untry w ith apresence across all segmentsof infrastructure i.e. power,r o a d s , h y d r o c a r b o n s &process industries. It is alsoplanning to scale up in niche

areas like defence, nuclearpo w er and shipbuilding , w hichhave the potent ia l to adds i g n i f ic a n t l y t o o v e r a l lrevenues in the next three tof i v e y e a r s ( f o r i n s t a n c e ,opening of defence foreigndirect investment (FDI) and

o rdering ca n help L&T a chievesca le o f 5x in term s o f defences e g m e n t r e v e n u e s f r o mcurren t 1,000 cro re run ra te).Over the last couple of years,L&T ha s a dded ca pa city tomeet increasing volumes. For

instance, the company hadadded 5,000 MW (MegaWatts)of power equipment facility,the heavy engineering facilityin Oman (FY10) and recentlyadded a complex shipbuildingfa cility. Hence, w e expect L&Tto register a revenue CAGR

(compounded annual growthrate) of 16.58% in FY14-16E asit commands a s trong orderba cklo g o f 2,14,000 crore,thereby providing visibility for

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November 2014


21/63

19

STOCK IDEAS


three ye a rs.

I n Q 1 F Y 1 5 , h y d r o c a r b o nb us ine ss repo rted a n EBIT(earnings before interest andta xes) lo ss o f 942 cro re. Thisw a s m a inly due to co st/tim eo v e r r u n s i n M i d d l e E a s thydrocarbon orders to the

tune o f 10,000 cro re. Themanagement expects theseorders to get executed byFY15E. How ever, in Q2FY15,the seg m ent reported a m inorlo ss o f 54 crore ind ica tingt h a t m o s t p r o v i s i o n s a r e

pro vide d fo r a nd lo ss es w ill beco m pletely pro vided for in thenext s ix to n ine months .Hence, w e expect mo st of thepa in to be o ver by Q4FY15.

We expect revenue CAGR of16.8% o ve r FY14-16E w hileE B I T D A ( e a r n i n g s b e f o r einterest, taxes, depreciation,and amortization) CAGR overthe sa m e period is expected a t13.4%. Hence, with operating

leve rag e in p la y, our PAT (pro fita fter ta x) CAG R o ve r FY14-16Estands a t ~ 11% as w e havea ss ume d fla ttish o ther inco m e

Ghost of hydrocarbon segmentlosses receding gradually

Revenue and PAT to exhibit 16.8%and 11% CAGR in FY14-16E on pickup in execution, margin stabilit y

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component in FY16E overFY14 w hile d eprecia tio n a ndinterest costs are expected to

exhibit a CAG R o f ~ 9% a nd3%, respectively. Hence, weexpect L&T's PAT to be a t6,461 crore in FY16E vs . 5,247cro re in Fy14.

Concerns such as a depletingo rder bo o k in the po w er/hea vyengineering segment seem tobe abating as ordering trendsin H1FY15 for these segmentssee m s to be enco ura g ing . This,

we believe will lead to robustrevenue booking over Fy1617E coupled with continueds t r o n g e x e c u t i o n o f t h einfrastructure segment. Event h e g h o s t o f h y d r o c a r b o nseems to be factored into thevaluation. We assign a target

price o f 2,206 (24-m o nthsperspective) as we believe byDecember 2015, we will getclarity on the intensity of thecapex (capital expenditure)cycle recovery and marketswil l s tar t d iscount ing into

F Y 1 7 E - 1 8 E e a r n i n g s a n dvisib ility. Thus , w e b eliev eL&T's is the bes t o ption to playthe capex recovery cycle inInd ia . We reco m m end 'Buy '.

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Worst seems to be getting over asFY16E to see robust execution;

recommend 'Buy

November 2014


22/63

20

STOCK IDEAS


Key risks include:Dela y in m a cro ec ono m ic environm ent pickup, policyinaction and rising competitive intensity from domestic as well as

Chinese a nd Korea n pla yers.

(EBITDA:Earnings before interest, taxes, depreciation, and amortization; EPS:Ea rning s per sha re; P/E:Price -to -ea rning s; EV:Enterprise va lue; P/BV:Price -to -bo ok value; RoNW:Return on net w orth; RoCE:Return o n Capita l Em ploy ed ; DII:Do m es tic ins titution a l inve sto rs; FII:Fo reig n Ins titutio na l Inve sto rs)

Key Financials

Valuations Summary

Stock Data

November 2014

Net sa les ( cro re) 60,874 66,580.2 74,114.5 90,823.8

EBITDA ( cro re) 6,403.9 7,280.5 7,915.8 9,365.3

Net pro fit ( cro re) 4,729.5 5,247.2 5,374.8 6,461.8

EPS ( ) 51.1 56.7 58.1 69.9

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P/E (x) 32.3 29.1 28.4 23.6

Ta rg et P/E (x) 18.9 17.1 16.7 13.9

EV /EBITDA (x) 25.1 22.1 20.3 17.2

P/BV (x) 5.2 4.7 4.2 3.8

Ro NW (%) 16.2 16.2 14.9 16

Ro CE (%) 14.8 15.1 14.8 16.2

Ma rket ca pita liza tio n ( crore) 1,52,608.5

Tota l d eb t (FY15E) ( cro re) 10,836.2

Ca sh a nd inves tm ents (FY15E) ( crore) 2,799.3

Enterprise va lue (EV) ( cro re) 16,0645.4

52-w eek Hig h/Low ( ) 1.5

Eq uity ca pita l ( cro re) 185

Fa ce va lue ( ) 2DII ho ld ing (%) 36.6

FII ho ld ing (%) 15.6

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23/63


FLAVOUR OF THE M ONTH

Tax implications of various investments

One of the important aspects of investments, w hich, w e as investors oftenoverlook, is: Tax-eff iciency of returns. Tax ef fic iency is a measure of how

much of an investment's return is left over after taxes are paid. Taxeffi ciency is essential in order to maximize net returns on our investments.As regards the return of investment, one needs to consider the real netreturns and not gross returns. There are various tax implications, asregards to returns on investments, w hich one needs to consider beforeinvesting, says CA Dhananjay J. Gokhale. A basic understanding ofinvestment income and taxes can go a long w ay in helping you build a tax-

efficient portfolio. M r. Gokhale takes us through the various avenues ofinvestments across asset classes, in the light of tax implicat ions. Read on.

INVESTM ENTS IN EQUITY

Stocks (Equity and Preference

Shares):

There are tw o types o f inco m e

which are earned from stock,

viz., Dividend and /or Capital

G a in /(Lo ss ) w hen the s toc k is

sold.

As regards the tax aspect ond i v i d e n d o n s h a r e s o f

d o m e s t ic c o m p a n y , t h e

dividend is not taxable in the

hands of the investor as the

c o m p a n y p a y s d iv id e n d

d is trib utio n ta x o r DDT a t

17.65% on the same. (It Was

15% up to S eptem ber 30, 2014

and has been increased to17.65% w.e.f . October 01,

2014). For d eta ils o n DDT,

please refer Section 115O of

Inc o m e Ta x Act, 1961.

When a sto ck is s o ld, the s a m e

is considered as capital gain

except in case wherein the

investment is made in the

co urse o f busines s o f tra ding in

s e c u r i t i e s a n d n o t a s a n

inves tmen t. As reg a rds the tax

a spec t on G a in /(Lo ss ) o n sa le

o f sto ck the perio d o f hold ing isimportant to determine the

taxa b ility o f the inco m e, w hich

w ill be c lea r fro m the follo w ing

table:

November 2014

CA Dhananjay J. Gokhale


24/63



November 2014

Type of securit y Period ofholding

Type of capitalgain / (loss)

Taxability

Equity sha res /

preference

shares w hich are

listed

Up to 12

months

S h o rt -t e rm

ca pital ga in /

(lo ss ) a t

15%

Ta xa b le

More tha n 12

months Lo ng -t e rm

ca pital ga in /

(lo ss )

Not Ta xa b le if

securities

t ran sac t ion t ax

(STT) paidTa xa b le if S TT is

not pa id

Equity sha res /

preference

shares w hich are

no t listed

Up to 36

months

S ho rt -t erm

ca pital ga in /

(loss)

Ta xa b le

More tha n 36

months

Long -term

ca pital ga in /(loss)

Ta xa b le

There a re va rio us a venues to prudently s a ve the ta xa ble lo ng -

term c a pital g a ins, w hich a re a s follo w s:

Section Part iculars Amount / Limitat ions

54F If net co nsidera tio n is

inves ted in residential ho use

property purcha sed eitherbefore one yea r or w ithin

two years or constructed

w ithin three y ea rs

The b enefit ca nnot b e a vailed

if the assess ee ow ns more

than o ne house property(other than the ne w ly

acquired /constructed

property) as on the d ate o f

ca pital ga in

If the a mo unt is n ot utilise dfor purcha se /construction

of house property by the end

of the fina ncial yea r, the

same needs to be deposited

in Capital Gain Sc hem eAcco unt on or before the due

da te o f filing Incom e Ta x

return

54EC If a m ount o f ca pita l g ain is

inves ted in spe cifiedsecurities

Rs. 50 lakh

Employee Stock Option Plans(ESOPs):

To d a y , t h e r e a r e m a n y

co rporates w ho o ffer ES OPs to

its employees wherein the

employees are rewarded by

o f f e r i n g a s t a k e i n t h e

ow nership of the co m pany.

As reg a rds the ta xa b ility o f the

ESOPs, when an employee

exercises the option under

ES OP, i.e., w hen he s ubs cribes


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November 2014

to the eq uity s ha res (se curities )

o f the c o m pa ny, his ta xa b ility is

dependent on the Fair Market

Va lue (FMV) a s o n the da te o fexercising the o ptio n:

(I) If the FMV is lo w er tha n the

exe rcise price , the d ifference is

taxable in the hands of the

em ploy ee a s a perq uisite and is

considered as Income from

S ala ry a nd taxed a cco rding ly;(ii) If the FMV is highe r tha n the

exercise price, generally the

employee does not exercise

the option to subscribe the

equity shares. In case if it is

exercised, there is no tax

incidence.

When equity acquired under

ESOPs are sold, the same are

governed by the regulations

applicable to equity shares,

except that the cost price is

required to be considered as

F M V o r e x e r c i s e p r i c ew h i c h e v e r i s h i g h e r

(presuming that the taxability

o f the sa m e is ta ken ca re o f a t

the time of exercising the

option as stated in the above

para).

Derivatives:

The transa ctio ns in deriva tives

a r e n o t c o n s i d e r e d a s

S pec u la t ive Trans a c t io ns

w.e.f. financial year 2005-06,

thanks to the provisions of

F i n a n c e A c t , 2 0 0 5 . T h e

classification of income fromderivatives as capital gain or

business income depends on

various factors in relation to

the asse ssee such as :

(I) I n t e n t i o n b e h i n d

undertaking tra nsa ctio ns

(ii) Freq uency o f tra nsa ctio ns(iii) Holding perio d

(iv) Vo lum e o f trans a ctio n

However, as all the above

fac tors a re sub jec tive in na ture,

there is always a grey area to

d e t e r m i n e t h e n a t u r e o f

i n c o m e f r o m d e r i v a t i v e stra nsa ctio ns. In ca se if the s a id

i n c o m e i s c o n s i d e r e d a s

b u s i n e s s i n c o m e , t h e

com pliance of tax a udit needs

to be kept in mind, if the

t u r n o v e r ( w h i c h i s g r o s s

summation of profit and lossfrom derivative transactions),

excee ds 1 crore during a

financial year and in other

ca ses , co m pliance w ith section

44AD need s to be ens ured .

Equity M utual Funds:

There are tw o types o f inco m e

w hich a re ea rned from eq uity-

oriented mutual funds, viz.,

Dividend (in case of dividend

`


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November 2014

o ptio n) a nd /o r Ca pita l Ga in/

L o s s w h e n t h e u n i t s a r e

redeemed.

As regards the tax aspect ond ividend (inco m e) fro m eq uity-

oriented mutual funds, the

dividend is not taxable in the

hands of the investor as the

m utual fund pa ys DDT a t

14.28% on the same (Note:

1 4 . 2 8 % i s f o r i n d i v i d u a l

investors and for others it is42.86%). Fo r deta ils o n DDT,

please refer Section 115R of

Inc o m e Ta x Act, 1961.

When mutual fund units are sold or redeemed, the same is

considered as capital gain, which is subject to taxability asfollows:

Type ofsecurity

Period ofholding

Type of capitalgain / (loss)

Taxability

Equity

oriented

mutual funds

w he re in S TT

is paid

Up to

12 months

S h o rt -t e rm

ca pital ga in /

(loss)

Ta xa b le

More tha n 12

months

Lo ng -t e rm

ca pital ga in /

(loss)

No t t a x a b le

Equity

oriented

mutual fundsw he re in S TT

is no t paid

Up to

36 months

S h o rt -t e rm

ca pital ga in /

(loss)

Ta xa b le

More tha n 36months

Lo ng -t e rmca pital ga in /

(loss)

Ta xa b le

Further, in case if an assessee

i n v e s t s i n E q u i t y L i n k e dS a v i n g s S c h e m e ( E L S S )

m utual funds , the investm ent is

elig ib le for ded uctio n fro m his

taxa ble inco m e to the extent o f

1,50,000 (Refer se ctio n 80C ofInc o m e Ta x Act, 1961) w ith a

lock-in period of three years

fro m the d a te of inves tme nt.

`

Fo llo w ing tab le w ill g ive a co m pa ra tive s tatistics a s reg a rds the

various angles related to tax implications w.r.t . growth and

reg ula r (d ividend ) o ptio n o f eq uity m utual fund s.

Holding periodw herein STT is paid

Equity mutualfund Grow th Equity mut ual fund DividendDividend Principal amount

Up to 12 m onths Ta xa ble a s sho rt-

term ca pital ga in

a t 15%

DDT p aid by MF

a t 14.28% Ta xa ble a s s ho rt-term

ca pital ga in at 15%

More than 12 months Not taxable

DDT pa id by MF a t

14.28%

Not ta xab le


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November 2014

Thus , a n inve s to r sho u ld

prudently choose the type of

scheme, depending on his

taxa ble inco m e and a pplica ble

tax b ra cket.

Raj iv Gandhi Equi ty Savings

Scheme (RGESS):

The scheme w as launched a s anew t ax advan t age s av ing

sche m e for eq uity inves tors in

India, who are first time retail

investors in securities market.

Under the s chem e a n investor

w a s a l l o w e d t o i n v e s t a

m a xim um a m o unt o f 50,000

per f inancial year and was

eligible for 50% deduction

fro m his ta xa b le inco m e. The

sa id schem e ca n be a vailed b y

t h e i n v e s t o r f o r t h r e e

consecut ive years and the

gains arising out the scheme

ca n b e rea lized a fter one y ea r.

The s a id sc hem e is a pplica b le

for inves tors w i th annua linco m e no t m o re than 12 la kh

per a nnum.

`

`

The ta xa b ility o f inco m e (in the

fo rm o f divide nd /g a in a rising

out of redemption of units) is

same as in case of equity

m utual funds .

Uni t L inked Insurance P lans

(ULIPs)/ Unit Linked Pension Plan

(ULPPs)/ National Pension System

(NPS):

The inves tment m a de unde r

ULIP a s w ell a s ULPP/NPS , is

eligible for deduction from

taxable income, under section

80C to the extent o f 1,50,000

per annum. (In case of NPS,

eligible for deduction under

se ctio n 80CCD to the extent o f

1,00,000 w ithin o ve r a ll lim it

o f 1,50,000 und er se ctio n

80CCE). However, as regards

the taxa bility fro m enca shm ent

of the same, one needs to

check various aspects which

a r e s u m m a r is e d in t h e

fo llo w ing tab le:

`

`

`


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November 2014

Type ofinvestment

Event f orencashment

Taxability Condit ions

ULIP Dea th o f po licy

holder

Not ta xab le in

the hands o f the

recipient

S urrender of

p olicy b efore

maturity

Not ta xab le in

the hands o f the

recipient

If pa id for five

years

Ta xa ble in the

hands o f the

recipient

If no t pa id for

five years

S urrender ofp olicy a t the

time of m a turity

Not ta xab le inthe hands o f the

recipient

ULPP Dea th o f po licy

holder

Not ta xab le in

the hands o f the

recipient

S urrender of

policy before

maturity

Benefit availed

under sec tion

80C w ill be

reversed and

the surrender

va lue w ill berequired to be

offered to ta x

S urrender ofpolicy at the

time of m a turity

1/3 rd

of thesurrender value

is tax -free and

ba lance 2/3 rd

needs to be

used for

purc ha s e of

annuity plan

NPS Dea th o f po licy

holder

Not ta xab le in

the hands o f the

recipient

Clos ure or

opting out of the

scheme o r

pension

received from

annuity plan

purchased

Ta xa ble

As regards NPS, there is an

additional benefit available forem plo ye es w hich is in a dd itio n

to the overall ceiling of

1,50,000 und er s ec tio n 80CCE,

wherein the contribution is

`

m a d e b y a n e m p l o y e r t o

a cco unt of an em ploy ee underNPS , sub jec t to a ce iling o f 10%

employee ' s s a l a ry w i l l be

elig ib le fo r deductio n fro m his

taxable income. (Please refer


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November 2014

sub-sect ion (2) of sect ion

80CCD o f Inc o m e Ta x Act, 1961

f o r m o r e d e t a i l s o n t h i s

a dd itio na l benefit).

Bank Fixed Deposits (Fds):Therea r e n o t a x - i n c e n t i v e s f o r

i n v e s t m e n t i n b a n k f i x e d

deposits (FDs) except for Fds

kept with a scheduled bankw ith a lo ck-in pe rio d o f not les s

t h a n f i v e y e a r s , w h e r e i n

ded uctio n und er sec tio n 80C is

available. However, such tax-

benefit FDs are subjected to

certain conditions like lock-in

perio d o f at lea st five y ea rs, noa d v a n c e s c a n b e g r a n t e d

against security of these Fds.

A s r e g a r d s t h e i n t e r e s t

received on bank FDs, the

INVESTMENTS IN FIXED-INCOM E

sa m e is taxa ble in the hands of

the assesse e.

Corporate Fixed Deposit s (Fds):

The inves tme nt in c o rpo rate

fixed deposits (FDs) does not

of fer any t ax benef i t . As

regards the interest received

on co rporate FDs, the s a m e is

taxable in the hands of the

assessee.Debentures / Non-Convert ib leDebentures (NCDs):

The inve s tment in Deb entures

/NCDs d oe s no t offer any ta x

bene fit. As reg a rds the interest

rece ived on Debentures /NCDs, the same is taxable in

the hands of the ass essee.

Debt M utual Funds (Including FixedM aturit y Plans or FM Ps):

The inves tme nt in d eb t mutual funds do es no t offer any tax

benefit . As regards the taxability of the income earned on thede bt m utua l funds , the ta xa bility is a s per fo llo w ing tab le:

Holding period Debt mutualfund Grow th

Debt mutual f und Dividend

Dividend Principalamount

U p t o 36 m o nths

Ta xa b le a s

short-term

ca pital ga in

DDT pa id by MF

at 33.33%

(42.86% if the

inves tor is o ther

tha n Ind ividua l)

Ta xa b le a s

short-term

ca pital ga in

More tha n 36

months

Ta xa b le a s

long-term

ca pital gain at

20% after

indexation

DDT pa id by MF

a t

33.33%

Ta xab le a s lon g-

term capital

gain at 20%after indexa tion


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November 2014

PPF/ EPF/ KVP/ NSC/ SCSS/ Other Post Off ice Savings Schemes:

There a re va rio us o ther avenues fo r inves tmen ts w hich a re

fixed-income generating and the taxability w.r.t. the same is

g iven in the follo w ing tab le:

Type ofinvestment

Tax benefitavailable oninvestment

Taxabilit y onincome earned

Taxabilit y onw ithdraw al of

principal amount

Public P rovident

Fund (PPF)

Eligible for

ded uction unde r

se ction 80C

w ithin ov erall

limit of Rs.

1,50,000 p.a.

Ta x -free Ta x -free

Employees

Providen t Fund

(EPF)

Eligible for

d ed uc tio n un d er

se ction 80C

w ithin ov erall

limit of Rs.

1,50,000 p.a.

Ta x -free

Tax -free,

provide d the

em ploye e is in

em ploym ent for

a continuous

period of no t

less than five

yea rs, o therw ise

taxable

Kisa n Vika sPatra (KVP)

No b ene fit

Ta xa ble

Not ta xab le

National

S a v ings

Certificates

(NSC)

Eligible for

ded uction unde r

se ction 80C

w ithin ov erall

limit of Rs.

1,50,000 p.a.

Ta xa ble but

elig ib le for

deduction

under sec tion

80C

Not ta xab le

Senior Citizen

Sa vings Scheme

(SCSS)

Eligible for

ded uction unde r

se ction 80Cw ith in overall

limit of Rs.

1,50,000 p.a.

Ta xa ble

Not ta xab le

Five -yea r t ime

depo sit w ith

Post Office

Eligible for

ded uction unde r

se ction 80C

w ithin ov erall

limit of Rs.

1,50,000 p.a.

Ta xa ble

Not ta xab le

RecurringDeposit (RD) /

Monthly Incom e

S che me (MIS )w ith Pos t Office

No benefit Ta xa ble Not ta xa ble


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November 2014

INVESTM ENTS IN CASH /LIQUIDASSETS

Savings Bank Account:

The interest ea rned o n sa ving s

bank account in excess of

10,000 p.a. is taxable in the

h a n d s o f t h e i n d i v i d u a l

(Deduction to the extent of

10 ,000 is ava i lab le under

section 80TTA o f Inco m e Ta x

Act, 1961). In case if the

amount of interest does not

excee d 10,000, the sa m e is

no t taxa ble in the hand s o f the

`

`

`

individual.

Liquid M utual Funds:

Th e in v e s t m e n t in liq u id

mutual funds does not offer

a ny ta x be nefit . Ho w ever, thes e

mutua l funds a re popula r

amongs t the inves tors for

parking of surplus funds and

e a r n b e t t e r r e t u r n s a s

compared to short-term fixed

depo sits of ba nks and also due

to very lower or nil exit load

charge d b y the m utual funds.

As regards the taxability of the income earned on the liquid

m utual funds , the taxa b ility is a s pe r follo w ing tab le:

Holding period Liquid mutualfundsGrow th

Liquid mut ual f undsDividendDividend

Principalamount

Up to 36 months

Ta xa b le a s

s ho rt -t erm

ca pital ga in

DDT pa id by MF

a t

33.33%

(42.86% if th e

inves tor is o ther

tha n Ind ividua l)

Ta xa b le a s

s ho rt -te rm

ca pital ga in

More tha n 36

months

Ta xa b le a s

long -term

ca pital ga in at

20% after

indexation

DDT

paid b y MF

a t

33.33%

Ta xab le a s lon g-

term capital

gain at 20%after indexation

INVESTM ENTS IN GOLD

In In d i a , a l m o s t e v e r y

household invests in gold in

v a r i o u s f o r m s ( t h o u g h

traditionally is purchased inphysical form) and at various

occasions.

Inves tment in g o ld in a ny o f the

following forms attracts same

tax treatment w.e.f. FY: 2014-

15:

I) Phys ica l Fo rm

ii) G o ld Exc ha ng e Tra d e dFunds (ETFs)

iii) Go ld Mutua l Funds


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November 2014

Holding period Taxability Taxrate

U p to 36 m o nths

Ta xa ble a s s ho rt term

ca pital ga in

Will be clubbe d a lon gw ith the o vera ll

incom e, thus,

app licab le ta x bracketdepending on the

taxa ble inco me o f the

assessee

Mo re tha n 36 m onths Ta xa ble a s long -term

ca pital ga in20% after indexation

There a re va rio us a venues to prudently s a ve the ta xab le lo ng -

term ca pital g a in, w hich a re a s follo w s:

Section Part iculars Amount / Limitat ions54F If net considera tion is

inves ted in res ide ntia l ho use

property purcha sed eitherbefore o ne yea r or within

tw o yea rs or constructedw ithin three yea rs .

The be nefit can no t be a va iledif the as sesse e ow ns more

than one house property(other than the new ly

acquired /constructedproperty) a s o n the da te ofca pital ga in

If the a mo unt is n ot utilise dfor purcha se /construction

of house property by the endof the fina ncial yea r, the

sam e needs to b e depositedin Capita l Ga in S chem e

Acco unt on o r before the dueda te o f filing Inco me Ta x

return

54EC If a m ount o f ca pita l g a in is

inves ted in sp ecifiedsecurities

Rs. 50 lakh

INVESTM ENTS IN REAL ESTATE

Physical Property:

The ta xa b ility o f inco m e from

inves tment in rea l es t a t e

( p h y s i c a l i n v e s t m e n t ) i s

considered as Income from

House Property and taxed

according to the provisions

und er Inco m e Ta x.

As reg a rds the g a ins a rising o ut of sa le o f physica l pro perty, the

tax incidence a nd a venues o f sa ving of tax are as follow s:


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November 2014

Type of security Period of holding* Type of capitalgain / (loss)

Taxability

i) Residential

house property

ii) La nd use d for

agricultural

purposes

Up

to 36

months

S h o rt -t e rm

ca pital ga in /

(loss)

Ta xa ble

More tha n 36

months

Lo ng -t e rm

ca pital ga in /

(lo s s )

Ta xa ble

*To b e ca lcula ted from the da te of pos se ss ion o f the ho use prope rty a nd no t

from the date of purchas e ag reem ent

There a re va rio us a venues to prudently sa ve the ta xab le lo ng-

term ca pital g a in, w hich a re a s follo w s:

Section Type of capital gain Particulars Amount / Limitations

54 Residentia l

house property

If am ount o f capital

g a in is invested in

residential house

property purcha sed

either before one

yea r or within tw oyea rs o r

con structed w ithin

three ye ars

No limit

If the a mo unt is no t

ut ilised for purcha se

/co ns truction of

house property by

the end o f the

fina ncial yea r, the

sam e needs to be

deposited in CapitalGain Scheme

Acco unt on or be fore

the d ue d ate of filing

Inc o m e Ta x return

54B La nd used fo r

agricultural

purposes

If am ount o f capital

g a in is invested in

land to be used for

agricultural

purpos e w ithin tw o

yea rs from the date

of trans fer

The land so ld s ho uld

have b een used for

a g ricultural purpos e

for tw o yea rs

immediately

preceding the da te

on w hich tran sfer

too k pla ce

If th e amo unt is notutilise d fo r purcha se

/co ns truction of

house property by

the end o f the

fina ncial yea r, the

sam e needs to be

deposited in Capital

Ga in SchemeAcco unt on or be fore

the d ue d ate of filing

Inc o m e Ta x return

54EC If a m ount o f ca pita l

ga in is invested in

spe cified se curities

Rs. 50 la kh


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November 2014

Real Estate Investment Trusts(REITs):

The recent a nno uncem ent by

the Securities and ExchangeBoard o f Ind ia (SEBI) a s

reg a rds g uide lines fo r crea tio n

o f REITs, it is expected tha t it

would be a new investment

a venue for avid investors w ho

are on the look-out for non-

t r a d i t i o n a l i n v e s t m e n ta v e n u e s . H o w e v e r , t h e

suc ce ss o f REITs w o uld la rge ly

depend on the w ay the scheme

are drafted and launched. As

regards the taxability of the

REITs , pre s um ing tha t the

same are launched as mutualfund s , is likely to be in line w ith

non-equity mutual funds. But

one needs to wai t and watch

for the REITs to be la unched to

understand the nitty-gritty of

taxation.

ALTERNATE INVESTM ENTS

Art Effects /Private Equity (PE)/Venture Capi tal :

Th e s e a re u n c o n v e n t io n a l

i n v e s t m e n t a v e n u e s , n o t

s u i t a b l e f o r r i s k - a v e r s e

i n v e s t o r s , t h a n k s t o t h e

illiquidity of such investments

and uncerta inty of income

generation on the same. As

r e g a r d s t h e i n c o m e

generat ion, the same may be

genera ted in the form o f

d ividend o n P riva te Eq uity (PE)

in v e s t m e n t s , w h ic h h a s

taxa b ility s im ila r to d ividend o n

equity shares, which is not

taxable in the hands of theinvestor. As regards income

received on Venture Capital,

the taxability depends on the

nature of instruments as to

w hether the sa m e is in the fo rm

of units of mutual fund, or

eq uity o r deb entures.The ta xa b ility o n sa le o f inve s tments m a de in Art (effects ), Priva te

Eq uity a nd Venture Ca pita l (w hether in the form o f units, eq uity o r

de be ntures) is a s fo llo w s:

Holding Period Taxability Tax Rate

U p to 36 m o nths

Ta xa ble a s s ho rt-term

ca pital ga in

Will be clubbe d a lon gw ith the o vera ll

incom e, thus,applicable tax bracket

depending on the

taxa ble inco me o f the

assessee

Mo re tha n 36 m onths Ta xa ble as lo ng -term

ca pital ga in

20% after indexation


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November 2014

There a re va rio us a venues to prudently s a ve the ta xa ble lo ng -

term c a pital g a in, w hich a re a s follo w s:

Section Part iculars Amount / Limitations

54F If net cons idera tion isinvested in residential house

property purcha sed either

before on e yea r or w ithin

tw o yea rs or constructed

w ithin three y ea rs

The b enefit ca nnot b e a vailedif the assess ee ow ns more

than o ne ho use property

(other than the ne w ly

acquired /constructed

property) as on the d ate o f

ca pital ga in

If the

a mo unt is no t utilise d

for purcha se /construction

of house property by the end

of the fina ncial yea r, thesam e needs to b e deposited

in Capital Ga in S chem e

Acco unt on or before the due

da te o f filing Inco m e Ta x

return

54EC If a m o unt o f ca pita l g ain is

inves ted in spec ified

securities

Rs. 50 la kh

Portfolio Management Services(PMS):

The ta xa b ility o f inve stm ents

made under PMS depend on

the intention of the investor,

i.e. , w hether the sa m e is to b e

trea ted a s b usiness incom e o r

ca pital g a in. Depend ing o n the

intentio n o f the investo r (w hichis a sub jec tive c o nce pt), the tax

incidence on such transaction

needs to be determined as

stated earlier in relevant type

o f se curities (depe nd ent on the

type o f investm ent, viz., eq uity,

deb entures, etc.).Note:The implication of tax on various aspects of investment is a vastsubject and is dependent on case to case basis. This article is limited t o theextent of having an overview of the same. It m ay be noted that the reader ofthe article is expected to take a decision only after consulting an expert in thefield of taxation and not depending on the contents of t his article. This articleis not an expression of an opinion by t he author, and in no m anner is intended

to provide guidance to the investor in w hat so ever manner. The decision ofinvestm ent m ade by the reader of the article should be m ade at his ow n riskand w ithout any recourse to the author of this article.

Plea se send yo ur feedba ck to m oney ma nag er@ icicisecurities.com


36/63


'Remain focused on long-term asset allocation'

Indian macro has stabil ized and has become more support ive for economicgrow th, says Pankaj M urarka, Head Equity, Ax is M utual Fund in aninterview w ith ICICIdirect M oney M anager. He advises investors toremain focused on their long-term asset allocation and not make too manyfrequent adjustments based on recent market actions.

Pankaj M urarka,

Head Equity,

Ax is M utual Fund

Tte--tte

Q:

A:

M a r k e t s s e e m t o b e i nconsolidation mode, after sharp

gains in the recent past. How do yousee them t rending in the near term?W hat are the risks to the market?

We do not take a view onma rkets in the short-term a s w edo not think it is possible top r e d i c t s h o r t - t e r m m a r k e t

movements.The key risk to the ma rket overthe medium-term is linked toexecution by the government.Market expects the g overnme nt

t o i m p l e m e n t g r o w t h -enhancing policies over thenext 6-12 months .

Do valuations look ex pensive? Va lua tions a re a round the

fa ir-va lue ra ng e. How ever, itsho uld b e noted that co rporateea rning s a re a t the low -end o fth e cyc l e an d an y g row threbo und should lea d to a strongea rnings bo os t .

How is the economic situationlooking like?

Indian macro has stabilizeda n d h a s b e c o m e m o r es u p p o r t i v e f o r e c o n o m i cg row th . Wh i l e g row th h asrevived, it remains weak and

uneven. It will take a couple ofyea rs for the econo my to mo veto a decisively higher growthpath and government policieswill be crucial to decide thetrajectory.

How are September quarterearnings looking like? What is the

road ahead for corporate earnings?

In the absence of a broadba sed reco very s o fa r, Ea rningsactivi ty is extremely stock-s p e c i f ic . H i g h e r q u a l i t y

Q:A:

Q:

A:

Q:

A:

November 2014


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Tte--tte

November 2014

companies have been able toma inta in/g row profits but ma nyo th e r compan i e s h av e g o ti m p a c t e d b y t h e w e a keconomy. On a consolidatedbasis, earnings-to-GDP (grossdomestic product) ratio is farlower than the level seen in2007. Susta ined revival ing row th sho uld provide a strongbo os t to e arnings .

Which sectors are you favoringcurrently and w hy?

Ra ther than look ing a ts e c t o r s , o u r a p p r o a c h h a salways been to look at qualitycompanies across sectors thato f f e r g o o d m e d i u m - t e r mearn ings g rowth prospects .

From a portfolio perspective,over the last few months, wehave run a higher exposure tocy clica l sto cks tha t a re expose dto the economic recovery. Webelieve that the economy hasbottomed and the revival overthe m ed ium term w ill provide a

big bo os t to q uality stoc ks tha tca n ta ke ad vantag e of the sa me.

The Reserve Bank of India (RBI)has maintained status quo in itsrecent monetary policy. By w hen doyou see the interest rates easing?

Inflation is on a weakening

trend a nd the RBI sho uld b e a bleto comfortably meet its glidepa th targ et in J a nua ry 2015. Weexpect policy rates to be cutover the ne xt 6-12 m onths .

Q:

A :

Q:

A:

Q:

A:

Q:

A :

How do you see the currencyreacting to the expected Fed act ionin 2015?

Given the stability in Indianmacro situation, the economyshould not face any disruptiverisk from any rate hikes by theFed. Some points to note arethe significant fall in currentaccount deficit (CAD), higherforex (FX) reserves, one of the

h i g h e s t i n t e r e s t r a t e s i nem erg ing m a rkets, a nd b eing a ta d i f f e r e n t s t a g e i n t h eeconomic cycle compared tothe US .

W hat is your advice for investorsat this point in terms of their overallportfolio and asset allocation?

Investors should remainfocused on their long-termasset allocation and not maketoo ma ny freq uent adjustmentsba sed on recent ma rket ac tions .G oing forw a rd, from a med ium-to-long term perspective, bothequity and fixed-income seemt o b e p o i s e d t o g e n e r a t er e a s o n a b l e r e t u r n s f o rinves tors. Inves tors s hould onlylook at quality portfolios andavoid making large allocationsto na rrow stra tegies.

The views expressed in the interview

are personal view s of the authors anddo not necessarily represent the view sof ICICI Securi ties.


38/63


ASK OUR PLANNER

Sw itching your investment options

Q:

A:

Our Group Superannuat ion Fund

is managed by ICICI Prudential LifeInsurance for the last 7 years. Wehave been given a choice to selectthe fund and I have chosen 'ShortT e r m D e b t F u n d ' f r o m t h ebeginning. We have the option ofsw itc hing to Tradit ion Plan /

Balanced Plan / Grow th Plan. Is itadvisable to sw itch it to Traditionalplan / Balanced Plan for a betterreturn w ith minimal risk? M y age is47.

- Sivaramakrishnan KG

S ho rt Term Deb t Fund s a re

ideal for investing for shorter

term i.e. less than 1 year.

Staying invested in them for a

per iod o f 7 years i s not

advisable. If your horizon is

lo ng i.e.15 yea rs o r mo re, yo u

s h o u l d c o n s i d e r i n v e s t i n g

some por t ion in to equi ty-oriented funds. Now that you

are 47 and might retire in the

next 10-12 years, you can still

consider investing into equity

for below reas ons:

One, your provident fund

a l r e a d y i n v e s t s i n t o d e b tinstruments and will be a

s i g n i f i c a n t p a r t o f y o u r

retirem ent co rpus. Tw o , the

provident fund accumulation

ca n b e utilized for fund ing yo urinitial post-retirement years,

say 10 to 15 years, depending

on the a ccumulation and yo ur

p o s t - r e t i r e m e n t e x p e n s e s .

This m ea ns tha t yo ur o ther

investments ca n sta y invested

into eq uity - o rientedins trum ents for this pe rio d too ,

adding to the 10-12 years left

no w fo r retirem ent.

S ince the numb er of years yo ur

other investments can stay

invested is over 15-20 years,

yo u ca n co nsider sw itching thefunds even to Growth Plan.

Growth Plan carries risk, but

the risk can get minimized if

yo u ho ld it ove r a lo ng er perio d

o f tim e (15-20 yea rs).

A l s o , w h i l e s w i t c h i n g t o

Growth Plan, it is suggestedno t to s w itch the entire a m o unt

in lum p sum , ra ther it is b etter

to switch systematically on a

regular basis, say, once in a

month or quarter, depending

o n ho w it is a llo w ed fo r yo u in

your Superannuation Fund.This w ill he lp in a verag ing the

en try po int into eq uity.

I am a ret ired employee aged 60Q:

November 2014


39/63


ASK OUR PLANNER

years. My requirement of housing,medical and monthly income istaken care of. I w ould like to invest

part of my retirement corpus ofaround 30 lakh in mutual fundsw ith follow ing object ives: To beatthe inflation and grow the corpus intax-eff icient manner in next five seven years.

Since investing big amount of

money through SIP route is notpossible in a short time, please letme know if it is a good idea to investin lump sum in mutual funds atcurrent levels. Please suggestfunds for investment keeping myprofile in mind.

- Manjunath

In o rder to b ea t infla tio n a nd

grow tax-efficient corpus, the

best option is to invest into

equity. However, i t is not

advisable to invest lump sum

amount in equity, given its

i n h e r e n t v o l a t i l e n a t u r e .

Hence, it is best to invest

systematically, either through

SIP (systematic investment

p la n ) o r S TP (s y s t e m a t ic

tra ns fer pla n).

If you invest through SIP, the

entire a m o unt w o uld be kept in

sa ving s ba nk ac co unt, ea rning

you a nominal rate of return.

Instead, you may shift the

`

A:

entire amount in liquid funds,

w hich w ill provide better return

than sa ving s b a nk a cco unt.

Yo u ca n then sta rt an S TP fro mliquid mutual fund, which will

systematically transfer a fixed

a m o u n t f r o m y o u r l i q u i d

m utual fund into e q uity m utual

fund regular ly , s ay , every

month. However, the gains

from your liquid mutual fundsha ll be a dd ed to y our incom e

a nd w ill be taxa ble a s per yo ur

incom e sla b.

Let's sa y yo u inve s t 30 la kh

into liquid mutual funds and

sta rt do ing a n S TP o f 1.50

lakh per month into equitym utua l funds fro m next mo nth

onw a rds . Yo u w ould ha ve

transferred the entire amount

into e q uity funds o ver the next

22 m o nths a ppro xim a tely. The

gain booked from the liquid

m

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