WHY STT is deducted for Switch from Growth to Dividend in the same Scheme

Query of Blog Reader

Very recently i did switch in the same scheme but i changed from Growth option to Dividend option, still  Securities Transaction Tax is deducted (STT)?
The scheme being the same, why is STT deducted as this was not redemption?

A Switch involves redemption in one scheme and a purchase into another scheme. Therefore in effect you have redeemed from one scheme and invested into another. 

 

Under Chapter VII of Finance (No. 2) Act, 2004 the unit holder is liable to pay Securities Transaction Tax ('STT') in respect of "taxable securities transaction" at the applicable rates. Taxable securities transactions include purchase or sale of units of an equity oriented fund, entered into on the stock exchange or sale of units of an equity oriented fund to the mutual fund.

Change from growth to dividend option means you are switching  means you are first redeeming the units in that scheme (growth option) and then purchasing in  dividend option as  both are actually different schemes as you know the Nav of Growth and dividend is not the same, as in growth option the appreciation get accumulated where as in dividend its paid or reinvested. 

Whether STT is paid in case of switch from Dividend Reinvestment to Dividend Payout???

No, such transaction is not considered as switch but this is change of Dividend option, and in such case no STT is deducted, if one opt for change of dividend option.

 

Tax on sale of Equity Investments made through Systematic Investment Plan?

In the case of Systematic Investment Plan installments in an equity fund, each installment is treated as a separate purchase, and any unit would have to be held for more than 12 months to qualify as long-term.

Therefore, if an investor redeems all units, only gains from those units that have been held for more than 12 months will qualify as long-term capital gains.

The gains from the remaining units will be short-term capital gains.

Lets consider this example as in this example which is going to be Long term capital Gains and which is going to be short term capital gains if investor decided to sell all units on 10th April 2012

Here in this example SIP is started from 14th July 2008 and it on going sip, if the investor decided to redeem all units then

Units from 14th July 2008 to 15th March 2011 is considered as Long Term Capital Gain/loss

and units from 15th April 2011 to 14th March 2012 is considered as short term capital gain/loss

Tax Treatment of Long Term Capital Gains from Equity Investment

Equity oriented funds means having at least 65% of assets in equity

Long-term capital gain refers to gains made on redeeming units held for more than 12 months. Currently as per tax laws, no tax is payable on the redemption or transfer of these units, provided such transaction is chargeable to the securities transaction tax. (STT)

Tax Treatment of Short Term  Capital Gains From Equity Investment

If the units are held for less than 12 months, the gain is called short-term capital gain. In the case of equity-oriented funds, short-term capital gains arising from the redemption of units of an equity-oriented fund will be taxed at 15 per cent, provided securities transaction tax has been charged.

I am not able to redeem all units in ELSS Scheme??

Query of Blog Reader

I have invested in  SIP in Franklin India Tax Shield Fund Dividend Reinvestment option, Now i want to redeem all units, but i am unable to redeem my complete units after three years as fund house says that the units are under Lock in Period? why is this So? Please help to solve this query.

   

As you mentioned above that you invested in Franklin India Tax Shield Fund.Franklin India Tax Shield Fund is ELSS Fund (Equity Linked Savings Scheme).

Investment made under Franklin India Tax Shied qualify for tax benefit under section 80C of income tax act and all subscription in Franklin India Tax Shield are Subject to lock in period of three years from the date of allotment and unit holder can't reedem, transfer, assign or pledge units during the period.

When an investment is made in a tax-saving ELSS scheme through SIP, each SIP instalment is treated as a fresh investment and the units are locked for three years, as per the guidelines governing ELSS. Each SIP investment has to complete the compulsory three-year lock-in. 

 

Same rule applies to dividend which is reinvested, it is also considered as Fresh Purchase being made by you.

So, you can't reedem all units, but only which completed 3 years, But as you chosen dividend reinvestment that also results in fresh purchase and lock in,  you can avoid that by changing the dividend option.

The best option for this is to apply for Change in dividend option from Dividend Reinvestment to Dividend Payout. For this you have to send a simple signed written request with your Folio(Account Details).

If you have online access to your Franklin Investment, the option to change is also available under Profile.

 You can also Refer this How lock in works in ELSS Funds...

Explain Lock in Period if investment is in ELSS Funds Through SIP (Systematic Investment Plan)

Form for change of Dividend option from Dividend reinvestment to dividend payout, (use switch option)

Infact they would have provided option of change of Dividend, but switch request will also get accepted...(means switch from Franklin India Tax shield Dividend Reinvestment to Franklin India Tax shield Dividend Payout)

Mutual Fund Mobile Applications in India..

One of the recent innovations is the facility to transact through a mobile phone. To enable this option, an investor has to register his mobile number with the AMC, install the related software available on the Website of the AMC offering this facility and then start transacting.

Following mutual fund houses provides this facility on mobile phone:

1. Reliance Mutual Fund  (Link)

Mobile Transaction is a service offered on http://m.reliancemf.com or http://m.reliancemutual.com for existing investors of Reliance Mutual Fund whereby they can Purchase less than 50,000, Redeem , Switch units view Account Details, Transaction Details, NAV and request for Statement of Account online. 

In order to opt for this service investor should mandatorily have to subscribe for Online Transactions facility. Only registered users of www.reliancemutual.com having Internet PIN can utilize this service.

 What is required for this service

• Existing Folio
• User Name & Password for accessing your folio I-Pin
• Permanent Account Number
• Mandate to process Electronic Clearing System (ECS Mandate for execution of purchase transactions only) duly registered.
• KYC Validated(means KYC process successfully done)

This software is Currently  available in Android Market (Google Play)
   (Link of the application for andriod users) 

2. HDFC Mobile 

 

(link of the ngpay moblile application for HDFC Mutual fund)

 For Android users you can check ngpay link (Link of ngpay)

HDFC mobile is very helpful to hdfc mutual fund investors as this application help us to transact(buy, sell and switch), view (Nav and account details). To have this application on your mobile you have following details with you

• Existing Folio (KYC Validated) 
• HPIN (HDFCMF Personal Identification Number).
• GPRS activated in mobile phone
• ngpay application downloaded in mobile phone (click here to download)

3. UTI Mobile

 

UTI Mobile enables you as an investor to initiate payment instructions for investing in UTI Mutual Fund schemes from your mobile.

UTI MF & mChek have partnered to offer investment into UTI mutual fund schemes to their customers, who can either invest lumpsum or setup a systematic investment plan (SIP) for any scheme offered on mChek. Currently, only the purchase option is available on UTI Mobile. Redemption, switching & other MF portfolio services are coming soon.

UTI Mobile services are available on the following channels

mChekMall on mChek Java client

mChekMall on WAP site (http://m.mchek.com) – Airtel customers can visit (http://m.mchek.com/airtel) toll free

 

All you need to do is register yourself for an ECS / Standing Instructions facility to avail the service (link of ECS form)

How this works:

• Download the ECS/Standing Instructions Form from the site.
• Submit the duly filled and signed form at your nearest UTI Financial Centre. The validation process takes 25 days. After which you will receive the confirmation on your mobile.
• You will receive an SMS confirming the validation of your number for the application.
• You will receive link of mcheck. Open the sms and get the mChek link. Install Mchek
• Mcheck logo will appear to confirm that the application is Installed in your mobile.  
• Confirmation that mcheck is successfully installed to proceed for transaction.

  (More details check this link: http://www.utimf.com/UTI-MF-Microsites/UTI-MOB/hightlight.asp)


4. Birla Mobile Manager 

 

 This Birla Mobile Manager works similar to UTI mobile, you have to do the registration, fill up Birla Mobile Manager form 

Birla Mobile Manager form  consists of two forms, registration form and ECS form, you need to submit both to nearest Birla Sun Life Mutual fund (AMC) or Cams.

(complete details about Birla Mobile Manager check this Link)

Convert E-Gold into one gram coins....

E-Gold is the country's first commodity investment product in dematerialised format.

To mark the completion of two years of launch of ‘e-Gold’ — India’s first commodity investment product in demat form — Financial Technologies (FTIL)-promoted National Spot Exchange (NSEL), has extended the facility of physical conversion of e-Gold units to 1 gm gold coins.

NSEL offers conversion of e-gold investments into coins. National Spot Exchange (NSEL) today said e-Gold units can now be converted into one gram of gold coins under a new facility. This facility is currently offering options of 8 gms, 10 gms, 100 gms and 1 kg lots.

Mr Anjani Sinha, Managing Director, NSEL said the latest move to allow “e-Gold delivery” in one gm denominations will attract more retail investors. In e-Gold, investors have found a unique way to park their money in gold without having to worry about purity or physical security that is inherent to jewellery and physical bullion, he added.

Source:http://www.nationalspotexchange.com/news_events.htm