Liquid Funds : Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs Repos and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual fund Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures. A Fixed Maturity Plan (FMP) is a close-ended scheme, and has an exit load, if redeemed, before the maturity period. Such schemes can have a maturity period of three months to three years. It selects an instrument, which corresponds with its maturity period. For instance, if the maturity of a scheme is one year, then the scheme will invest in instruments having one-year maturity. As the instrument will have a fixed interest rate payable on quarterly/half-yearly basis, the NAV will be on interest accrual basis. Debt Funds : Debt funds are funds that invest strictly in debt related securities. Unlike any other asset class like equity, debt securities are characterized by the following factors Known maturity period, Known coupon rate (or in common parlance known interest rate) & Known maturity value. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Income/bond schemes invest in long- and mediumterm instruments like corporate bonds, debentures & fixed deposits. Government authorities, Pvt. Cos., Banks and FIs are some of the major issuers of debt papers. Examples of these instruments include Debentures issued by Corporates, State Govt. & Central Govt., FD, CP, T Bills & Debentures. Debt funds are further classified as : Income/bonds, liquid/money market and gilts schemes. MIPs : Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with debt schemes. Gilt Funds : Invest their corpus in securities issued by Government, popularly known as Govt. of India debt papers. These Funds carry zero Default risk but have Interest Rate risk. These schemes are safer as they invest in papers backed by Government. G Secs / Gilt edged Securities : Securities / Sovereign papers issued by the Central / State & Quasi Governments. It is a promissory note, issued by the original holder, which contains a promise by the President of India / State Govt. to pay as per given schedule. The maturity period is medium- and long-term depending upon an investors goals. There are other plans, too, like monthly income plans (MIPs) wherein every month a fixed amount is invested of which approximately 20% is allocated to equity and the remaining to debt. SGL : Subsidiary General Ledger Account is the demat facility for G Sec offered by the RBI. In the case of SGL facility the securities remain in the computers of RBI by credit to the SGL account of the owner. Treasury Bills : Short-term instruments issued by the Treasury or RBI to mobilize short term funds for the Govt. They have a tenor like 14 to 364 days & sold at a discount & redeemed at par on auction basis by GOI. They have nil credit risk & negligible price risk. Money Market Instruments : Debt instruments having maturity less than 1 year at the time of issue. These are highly liquids and have negligible risk. The MMT are treasury bills, CD, CP & Repos. CD : These are transferable short term deposits issued by Banks & FIs. It has a maturity of 91 365 days & are issued at a discount & redeemed at par. They offer higher rate if interest than T Bills & Term deposits. CP : They are short-term unsecured promissory note issued by financially strong forms. It has a maturity of 90 180 days & are issued at a discount & redeemed at par. Repos : It is used as an abbreviation for repurchase agreement or ready forward & involves a simultaneous sale & repurchase agreement. They are very convenient, safe & earn a pre-determined return. Repos are very shortterm market instruments. It is nothing but a collateralized borrowing and lending. In reverse Repos securities are purchased in a temporary purchase with a promise to sell it back after a specified period at a pre-specified price. Repo for one party is Reverse Repo for the other party. The rate of interest paid by the RBI to borrow funds from commercial banks is call Repo Rate Call Money : Borrowing or lending for one day in the inter-bank market is known as call money. Entry into this segment of the market is restricted to notified participants which include scheduled commercial banks, primary dealers and satellite dealers, development financial institutions and mutual funds. CRR : A portion, decided by the RBI, of the depositors money that banks must keep in the form of cash. The purpose of CRR is to ensure that the banks are liquid at all times and is changed from time to time to regulate the availability of credit and the money supply in the economy. Basis Point : One hundredth of a percentage (i.e..01). As interest rates are generally sensitive in the second place after the decimal point, the measure has large importance for the debt market.
TDS
NRI
As per slab
TAX FREE
28.33
14.16
9.30% 33.99%
9.50%
9.50%
9.50%
Inflation (Assuming)
22.66% 11.33%
6.14%
7.74%
8.42%
9.16%
* DDT = Dividend Distribution Tax *** LTCG = Long Term Capital Gains
Double Indexation : For calculating capital gains, we reduce the cost from the sale value. For calculating long-term capital gains, such cost can be enhanced by the inflation multiple. For this purpose, CBDT (Central Board Of Direct Taxes) releases the index figures for each financial year. Such declared index is applicable for any transaction done during the entire year. The base year is 1981-82 for which the index is 100. Then on, considering the inflation figure for the year, CBDT has been releasing indices for each year. Such an index is known as the Cost Inflation Index (CII). Thus, Double indexation is a neat trick where you by holding the investment a little into the next financial year, an investor can use the facility of the CII for two years (holding an investment for a little more than one year & getting the benefit of the index multiple of two years). The CII usage boosts the cost beyond the sale price due to which the investor suffers a notional capital loss. Consequently, the entire maturity value is rendered tax-free. The net annualized return remains without any tax incidence whatsoever. This is called Double Indexation, Ladies and Gentlemen !