IN FOCUS: Key developments in Mutual Funds

At a time when the Indian Mutual Fund (MF) industry is celebrating 25 golden years of existence, we are witnessing important developments in the landscape, some impacted by SEBI while others fuelled by changes in the broader economy. Here’s what you as an investor need to be aware of:

  • Expense reduction in MFs

To pass on the economies of multi-fold scale in MFs to end consumers, SEBI has lowered the Total Expense Ratio (TER) that a fund house can charge investors on Equity MFs, effectively making such investments cheaper at the retail level. TER reduction in MFs will vary by fund size, with larger funds now facing larger cuts in TER than smaller ones.

  • Changes in MF commission model for distributors

In an effort to provide investors with better transparency in MF costs, SEBI has mandated that all MF expenses and commissions must be paid from the MF scheme only. The MF industry is now required to adopt the full trail commission model for all schemes and upfront commissions can longer be paid by fund houses to MF distributors.

Implications: While lower MF fees and new commission mandates might initially hurt distributor margins, the pain will likely be short-lived. Greater transparency for investors combined with lower fees on MF investments will improve demand and increase market size for MF products, thereby contributing directly to top line growth for MF agents. Higher levels of investor participation in the MF industry will ultimately benefit all members of the market ecosystem including investors, financial advisors and mutual fund houses.

  • Panic for Debt MF investors?

The recent weeks have been a stress test for India’s financial system with the future of defaulting behemoth IL&FS on the line. Last week, the Government of India seized the reins of managing the group’s mammoth debt burden, prompting investors to reflect on the implications of “India’s Lehman moment”.

Tremors originating at the epicentre of this crisis have been felt in broader bond markets, as concerns emanate about the strength of NBFC (non-banking financial company) & HFC (housing finance company) balance sheets across the industry. Falling NAVs of associated Debt MFs have drawn warranted scrutiny upon the MF industry with one seemingly alarming statistic: MFs own about 60% of overall NBFC commercial paper issuance. In the face of a weakening rupee coupled with rising bond yields, do MF investors have reason to panic?

The answer is not straightforward. Market experts have attempted to calm investor nerves by asserting that this is more a crisis of confidence, not liquidity, and further adding that the RBI would do the needful to safeguard liquidity in the system. It is noteworthy however that fixed income fund exposure to HFCs (about 12 percent) and NBFCs (about 6 percent) is not, by any means, insignificant. Therefore, at present, it is crucial for those invested in affected debt funds to closely monitor the crisis resolution.

It is now most important for regulators & corporates to collaboratively ensure that similar crises are avoided in the future, by reevaluation of credit rating methodologies, improved due diligence of corporate balance sheets and better diversification in MF portfolios.

Managing Diversified Portfolios Effectively with MProfit

There is much to look forward to about the future of the financial markets landscape in India. Household disposable income is on the rise, creating demand for avenues that generate high returns on invested wealth. AMFI data has shown that the number of Systematic Investment Plan (SIP) accounts added in the Jan-Jun 2018 period is up 60% compared with the same period last year. According to a recently released IMF Economic Outlook, Indian GDP growth will progressively increase over the medium term, in turn helping the Indian Wealth Management industry to grow yearly by 10-15% and more than doubling the number of Indian ultra-HNIs by FY22.

Regulators have responded positively to India’s promising growth outlook, permitting Indian investors access to a wide array of new financial products such as portfolio management schemes, fixed-income instruments and alternative investment funds. A higher level of market awareness has prompted savvy investors to seek greater balance in capital allocation. This is arguably a step in the right direction, in line with the fundamental principles of portfolio diversification.

What is portfolio diversification and why is it essential to Indian investors?

Portfolio diversification is the practice of allocating one’s investments across different asset classes, industries and/or geographies to minimize portfolio risk by reducing exposure to the underperformance of any one particular asset, industry and/or region.

Diversification is not necessarily aimed at maximizing portfolio returns; however, it does carry important implicit benefits for wealth preservation. Holding a basket of uncorrelated assets in one’s portfolio can limit losses in a cyclical bear market, and effectively safeguard an investor’s capital for subsequent bull market runs that present opportunities for enhanced returns. Portfolio diversification, while serving as a risk mitigation technique, also provides investors with freedom to gain exposure to a greater proportion of risky assets in their portfolios, while keeping overall portfolio risk low.

How can Indian investors create diversified portfolios?

Creating a well diversified portfolio isn’t rocket science. The cornerstone of sound portfolio diversification, simply enough, is discipline that must be exercised while formulating one’s asset allocation strategy. A well diversified investment portfolio must comprise a carefully curated selection of securities that are not highly correlated in terms of performance and are characterized by different risk profiles, to keep portfolio risk low.

Adjusting for their individual risk appetites, Indian investors can look to invest in combinations of securities belonging to the following asset classes:

• Stocks
• Exchange Traded Funds (ETFs)
• Equity Mutual Funds
• Corporate Bonds
• Debt Mutual Funds
• Fixed Deposits
• Precious Metals
• Property/Real Estate

How can MProfit help?

While the consistent increase in the number of investment products on the market is beneficial for portfolio diversification, it also creates an unprecedented challenge for Indian investors – how must one maintain and manage vast baskets of investment holdings?

After all, each asset class is governed by its own sets of laws, exchanges & intermediaries, and investors are expected to follow unique rules for tracking P/L, accounting & tax implications specific to each asset class. To add to the complexity, a well diversified portfolio requires consistent analysis and rebalancing, to adjust for changes in micro and macro environments. Now more than ever before, Indian investors are faced with the daunting task of tracking all of their investments in real-time.

This is where MProfit comes to the rescue. By providing an affordable & simple-to-use desktop (and soon-to-launch Cloud!) solution, MProfit allows users to manage investments across a large number of asset classes that seamlessly integrate with MProfit’s comprehensive accounting module.

One of MProfit’s differentiators is its proprietary import engine that can aggregate data from over 3,000+ sources across many disparate formats for key asset classes. We have saved our clients countless hours in painstaking manual import of trade & accounting data. In line with the new Grandfathering provision introduced by the 2018 Indian Budget, MProfit has also fully integrated & simplified the complex calculation of capital gains for all transactions (including corporate actions such as bonus, split, merger, de-merger).

MProfit truly empowers the Indian investment community to reap the benefits of an improved financial markets landscape by providing complete visibility into personal, family & client portfolios. With MProfit, individuals and investment professionals are able to diversify better and achieve higher returns in the long-term.

MProfit now supports long-term capital gains calculations as per Grandfathering provision

The 2018 Indian Budget introduced a long-term capital gains tax of 10% on stocks and equity mutual funds exceeding Rs. 1 lakh. However, all gains until 31-Jan-2018 are grandfathered. This means that you will have to pay tax ONLY on the gain from the base of highest price on 31-Jan-2018.

Grandfathering calculations get complex when there are one or more corporate actions in your long-term holdings. The recent major update of MProfit has simplified the calculation of capital gains as per the Grandfathering clause for all transactions (including multiple corporate actions such as bonus, split, merger and demerger). MProfit automatically calculates the long-term capital gains and provides reports in different formats including Summary and Detailed views with all details such as Purchase Price (PP), FMV and Cost of Acquisition (CA) accurately calculated and displayed for each transaction.

MProfit has, over the years, perfected the calculation of capital gains and made it extremely simple for users to use this information while filing their tax returns.

Salient features of MProfit specific to the calculation of capital gains include:
– Calculation of capital gains based on First-In-First-Out basis (FIFO) and as per Grandfathering clause
– Intra-day, short-term and long-term capital gains calculations for stocks
– Short-term and long-term capital gains calculations for equity & debt mutual funds as well as for traded bonds
– Long-term capital gains calculations for debt mutual funds with or without indexation
– Adjustment of capital gains calculations as per income tax rules for corporate actions such as bonus, split, merger and demerger
– Feature to allocate contract note charges to purchase amount and sale amount for stock transactions to reduce the tax liability
– Summary and detailed formats available for capital gains reports
– Transaction-wise capital gains report with all details such as Original Purchase Price (PP), FMV (highest price as on 31-Jan-18) and Cost of – Acquisition (CA) as per grandfathering rules
– Unrealised capital gains reports that help users manage “actual” capital gains
– Holdings reports that track the number of holding days of stocks and mutual funds since the purchase date

Below is a list of useful posts to help you know more about how MProfit manages capital gains calculations:

Forum post:
Summary and Detailed Capital Gains Reports as per Grandfathering rules

Blog Posts:
Capital Gains Calculations simplified with MProfit
Capital Gain Calculations for Shares (Stocks)
Capital Gain Calculations for Mutual Funds (MF)
A video tutorial on Capital Gains Reports

Grandfathering – New Capital Gains Tax Simplified

India’s 2018 Budget delivered by Finance Minister, Mr. Arun Jaitley proposed a long-term capital gains tax of 10% on stocks and equity mutual funds exceeding Rs. 1 lakh without allowing any benefit of indexation. However, as per the Budget, all gains until 31st January, 2018 will be grandfathered. According to Wikipedia, a grandfather clause is a provision by which an old rule continues to apply to a certain existing situation while a new rule would apply to all future instances. This implies that you will not be taxed on any gains that you have already accumulated up until 31st January, 2018.

More recently, on 4th February, 2018, the Central Board of Direct Taxes (CBDT) issued a list of 24 frequently asked questions (FAQs) regarding taxation of long-term capital gains proposed in the Finance Bill, 2018. This list of FAQs further makes it clear that the new long term capital gains tax will be applicable only for sales on or after 1st April, 2018. The long-term capital gains tax exemption will continue for any sale between 1st February and 31st March, 2018 as per current taxation policies. To summarize, there is no change in the long term capital gains tax exemption for the financial year 2017-18.

MProfit has consistently been the preferred choice of solution amongst chartered accountants and investors for the computation of short-term and long-term capital gains. As the new long term capital gains tax change is not applicable for the current financial year FY2017-18, investors should continue using the existing version of MProfit to compute capital gains for the financial year FY 2017-18.

MPROFIT WILL PROVIDE SUPPORT FOR NEW CHANGES TO CAPITAL GAINS CALCULATIONS IN THE COMING MONTHS.

The scenarios below detail how long term capital gains will be calculated for sales on or after 1st April, 2018. In each of these scenarios, a certain asset is purchased on 1st January 2017 and sold on 1st April 2018. The Long Term Capital Gain calculation for this asset is now computed by determining what the Cost of Acquisition is for the asset, by comparing the values for Purchase Price (PP), Fair Market Value on 31st January 2018 (FMV)  and Sale Price (SP):

ScenarioScenario DescriptionPurchase Price as on 01-Jan-2017 (PP)Fair Market Value as on 31-Jan-2018 (FMV)Sale Price as on 01-Apr-2018 (SP)Cost Price for Capital Gains CalculationLong Term Capital Gain
1PP < FMV < SP10020025020050
2PP < SP < FMV1002001501500
3FMV < PP < SP1005015010050
4SP < PP < FMV10020050100-50
5SP < FMV < PP1005025100-75
6FMV < SP < PP1005075100-25
7Bonus: PP = 0, FMV < SP
020025020050
8Bonus: PP = 0, SP < FMV
02001501500

If you would like to learn more about how MProfit simplifies capital gains for various assets, click here.

Click here to download the FAQ list published by CBDT.

MProfit supports import of CAMS consolidated account statement for all mutual fund schemes

Computer Age Management Services (CAMS) and Karvy are two leading Registrars who provide services to investors on behalf of mutual fund houses. Many mutual fund investors are not aware that CAMS provide consolidated account statement (CAS) for their entire family’s mutual fund transactions across all schemes including the ones managed by CAMS, Karvy and Franklin Templeton.

One statement contains the mutual fund transactions for entire family across all the mutual fund schemes. Investor needs to link the same email address to their all family folio numbers with CAMS, Karvy and Franklin, if not done while investing for the first time. The CAS statement can be requested for any period of all your mutual funds, including holding of many years.

MProfit has made it extremely easy to upload all mutual fund transactions for entire family from this statement. All kind of transactions, such as subscription, redemption, SIP, STP, Switch-In/Out, SWP, Dividend Reinvestment, Dividend Pay-out are imported from this statement in MProfit. Investors can review various reports related to mutual funds in MProfit such as capital gains (with & without indexation), annualised returns (XIRR), asset allocation and many other reports.

Click here for the detailed information to learn how to request CAS file and how to import it in MProfit.

Made in India – MProfit Review by Dr. Mahesh Docherla

As a physician, I have been dabbling in investments since 15 years but the problem has always been accounting and calculating tax estimates which my CA was reluctant to do. It was also tedious to take each contract note and entering every detail especially when using all the services of a institution like ICICIDIRECT. I had started using MPROFIT since its inception when it was free to use and have gained complete confidence in the software and I am now a paid subscriber.

My CA also understands the reports very easily. MPROFIT does not charge anything etc for modifications & updates in software when the laws are changed and importing contract notes are completed in seconds. Any query is solved within a few hours in the daytime and where I do query at night, I immediately get online assistance and correction within 24 hours without fail. The support team is prompt, knowledgeable and once they have contacted, they will put in the time necessary to solve the problem.

Such service at such low subscription is a rarity in India. You have all the aspects of an international standard services company in the form of customer services, regular updates, online rectification of problems, accountability and most of all patient and decent services. I recommend this software to each and every Indian and hope that everyone encourages MPROFIT which follows excellent business and work ethics. This is one “MADE IN INDIA” company which truly deserves our support and everyone should make use of the services provided by this company.

A resolution to receive a handsome financial reward

Happy New Year to everyone! Why not make a New Year’s resolution that will give you a handsome financial reward and is easy to achieve? Start using MProfit and effortlessly take care of portfolio management for your entire family or all your clients.

MProfit’s comprehensive list of features as well as its best-in-class support have made it the preferred choice of the entire investing community, including 1000s of investors, financial advisors, family offices and chartered accountants. It is consistently rated as one of the best software solutions on SoftwareSuggest, India’s popular software listing web portal.

MProfit is an easy to use software solution to manage Stocks, Mutual funds, Bonds, F&O, and all other assets. MProfit now supports import of more than 2,700+ different formats such as digital contract notes, mutual fund & bank statements.

2017 has certainly shown that dynamic changes at both a global and local level are frequent yet unexpected. As financial markets are influenced by all forms of macro & micro events, investors should be prepared for any heightened volatility in 2018 by actively monitoring their investments and taking prudent decisions based on changing circumstances.

MProfit is specifically geared towards helping investors/financial advisors achieve these goals with ease and efficiency by reducing their administrative manual work and providing useful reports including capital gains reports. Investors/financial advisors using MProfit can certainly spend more time on research related to their investments and make better investment decisions.

So, make the resolution to be smarter & more disciplined with your investments in 2018! Click here to download MProfit Investor for free today!

New Cost Inflation Index & Capital Gains Reports for Gold Bonds

As declared in the Budget 2017, Finance Minister Mr. Arun Jaitley has made changes to the cost inflation provision and accordingly, new cost inflation index (CII) numbers used for calculating capital gains with indexation have been notified by the Central Board of Direct Taxes (CBDT). The base year for the cost inflation index has been revised to 2001 from 1981. These changes are applicable starting financial year 2017-18 and onwards. MProfit’s new software update has incorporated these changes. MProfit has made it extremely simple for users to compute capital gains with indexation for any period. If any Debt MF or gold bonds are sold after 1st April 2017,the software will compute capital gains with the new base year and new CII index numbers. Computations for trades prior to 1st April will be done based on old CII numbers.

We recently introduced support for current prices of gold bonds in MProfit. The new update also provides capital gains reports for gold bonds. Normally all traded bonds on exchanges have long term capital gains for 1 year and beyond, except gold bonds, which follow the 3year & beyond long term capital gains calculations. Our latest update shows separate capital gains for gold bonds. We are also consistently committed to introducing new features to improve our core platform. We have recently released our new update v9.5 (build 1014.028) which packs new features, provides improved reports and fixes minor issues. Below is the complete list:

New Features:

  • New import support to handle GST details from contract notes (MProfit now supports more than 2,500 import templates)
  • New import support for yearly consolidated contract notes in one PDF file from various brokers
  • Contract note window – label changed to GST / S. Tax
  • Improved mapping mechanism during import to avoid losing mapping details

Improved Reports:

  • Capital gains reports now show separate capital gains for traded bonds (1 year, long term) and Gold Bonds (3 year, long term)
  • Support for new indexation table from 1stApril,2017 for Debt MF & Gold bonds in global and individual capital gains reports
  • Changed label ‘Serv. Tax’ to ‘GST / S. Tax’ in contract notes reports
  • Capital gains summary reports now show five periods for advanced tax planning: 01-Apr to 15-Jun, 16-Jun to 15-Sep, 16-Sep to 15-Dec, 16-Dec to 15-Mar and 16-Mar to 31-Mar

Minor Bug Fixes:

  • Fixed incorrect gain/loss in multiple buys and sells within the same contract note in stock register
  • Fixed incorrect balance quantity in case of merger after short sell in closing balance report
  • Fixed report crash issue if instrument name was missing in F&O Summary report

 

MProfit receives awards of “Budget Friendly” and “Customer’s Choice”

SoftwareSuggest, one of India’s leading business software discovery and recommendation platforms, has given MProfit the awards of “Budget Friendly” and “Customer’s Choice”.

We at MProfit are very proud of this achievement and would like to thank the entire MProfit team and all the stakeholders and especially our valued clients for helping us earn these awards.

MProfit has become the preferred choice for users across the entire investing community, be it Investors, Traders, Family Offices, Financial Advisors, Sub-brokers or Chartered Accountants. We have added many features and reports over the years and made MProfit a robust platform along with unmatched customer support to help you manage your investments and finances

We again thank all our clients for valuing MProfit as their preferred choice.

Manage Sovereign Gold Bonds with MProfit

What are sovereign gold bonds?
As part of the gold monetisation scheme launched by Prime Minister Narendra Modi in November 2015, sovereign gold bonds are issued by the Reserve Bank of India (RBI) on behalf of the government. They are a replacement for physical gold and are available in paper or demat form.

Which sovereign gold bonds are supported in MProfit?
In line with our commitment to continually improve MProfit and introduce new features, MProfit has added support for the sovereign gold bond asset class under the ‘Traded Bonds’ category. MProfit users can now track the performance of these bonds on a daily basis, review overall gains as well as annualised return (XIRR) for this category. Here is a list of the sovereign gold bond series that have been added in MProfit:

Sovereign Gold Bond 2.75% Nov 2023 Tr- I (ISIN: IN0020150085)
Sovereign Gold Bond 2.75% Feb 2024 Tr-II (ISIN: IN0020150101)
Sovereign Gold Bond 2.75% Mar 2024 Tr-III (ISIN: IN0020150119)
Sovereign Gold Bond 2.75% Aug 2024 Tr-IV (ISIN: IN0020160027)
Sovereign Gold Bond 2.75% Sep 2024 Tr-V (ISIN: IN0020160043)
Sovereign Gold Bond 2.50% Nov 2024 Tr-VI (ISIN: IN0020160076)
Sovereign Gold Bond 2.50% Mar 2025 Tr-VII (ISIN: IN0020160126)
Sovereign Gold Bond 2.50% MAY 2025 Sr-I 2017-18 (ISIN: IN0020170018)

How are capital gains calculated for sovereign gold bonds?
If sovereign gold bonds are sold in the secondary market before maturity after three or more years since purchase, capital gains on these transactions will be taxed at 20% with indexation. However, if they are sold within three years of purchase, the capital gains would be subject to the marginal tax rate. Our team is working to provide separate capital gains reports with and without indexation for this category, and these new reports should be available in the next public software update.