Fund Fulcrum (contd.)
(December 2007)

Piquant parade

Union Bank of India is to form a 51% joint venture with Belgium-based KBC group to enter the Indian mutual fund arena.

UTI Mutual Fund, which is likely to become the first public-listed fund manager in Asia, will open 53 new branches in the next three months across the country by utilising a part of the proceeds from its proposed public offer which is likely to hit the market in February 2008.

The Pension Fund Regulatory and Development Authority (PFRDA) has given its assent for investments of up to 5 per cent of the funds under the new pension system (NPS) in stock markets and another 10 per cent in equity linked mutual funds. SBI, UTI and LIC Mutual Funds have been appointed as the fund managers to manage Rs. 2000 cr under NPS for a period of three years from June 2008. The fund managers would also offer an option to employees to invest 100 per cent of their pension funds in Government securities which give assured returns.

Regulatory Rigmarole

Indian Mutual funds can invest upto $7 billion annually in the overseas markets - a good 40% jump over the present ceiling of $5 billion. The present ceiling has been raised from $4 billion about three months back.

The exposure limit of banks for loans and advances to individuals against units of mutual funds were specified by RBI so far. Capital market loans extended by banks to Mutual Funds and issue of Irrevocable Payment Commitments (IPCs)(payment commitments made to stock exchanges on behalf of mutual funds and foreign institutional investors (FIIs).), now fall under the ambit of the RBI exposure limit. However, according to SEBI regulations, mutual funds can borrow to meet temporary liquidity needs for repurchase, redemption of units or payment of interest or dividend to unit holders. However, this borrowing is limited to 20% of the net asset of the scheme and for a duration not exceeding six months.

SEBI guidelines entail that entry and exit loads should not be charged for units given as bonus or against reinvested dividends.

Every investment made into a fund will compulsorily have to be accompanied by a valid PAN card from Jan 1, 2008. Mutual fund investors will have a single-point of dissemination of all financial documentation essential to fulfil the mandatory KYC norms as prescribed by SEBI. Mutual funds association AMFI, in collaboration with CDSL Ventures, a subsidiary of Central Depository Services (India), has developed a single centralised platform, to store proof of identity, proof of address, PAN card, and a photograph while investing Rs. 50,000 and above (to be phased down to zero in the second stage) in mutual funds schemes with effect from 1 February, 2008. A unique client id will be allotted and mapped to each client’s PAN. The relevant document and information have to be provided only once by the investor, after which a copy of KYC acknowledgement slip can be furnished for future investments. The back-up documentation has to be kept for a period of 10 years.

Several forward looking measures are in the draft stage and SEBI plans to finalise them after seeking expert and public opinion.

After a gap of six years, SEBI will be allowing domestic fund houses to short sell securities (the sale of securities that an investor does not own) as well as to avail stock lending and borrowing (SLB) facilities. There is a ban on naked short-selling- all short-sellers would be required to mandatorily honour their obligation of delivering the securities at the time of settlement.They can honour the trades by borrowing the securities through the proposed SLB scheme. No institutional investors will be allowed to do day trading. This virtually prohibits squaring off of their transactions intra-day. All shares that are in the futures and options (F&O) segment will be eligible for short-selling. SEBI has asked stock exchanges to establish systems to operationalise short-selling and SLB. The exchanges were also asked to ensure all appropriate trading and settlement practices as well as surveillance and risk containment measures, before their introduction.

Real Estate Investment Trusts (REITs), which would invest directly in real estate projects after collecting funds from investors through the stock exchanges, will soon enter the Indian markets with SEBI placing draft rules for such trusts. Banks, public financial institutions, insurance companies and corporate houses can be trustees of REITs, which should be created under the Indian Trusts Act. The trust and management companies are required to be registered with SEBI and they should have a net worth of not less than Rs 5 crore. REITs will be close-ended and the schemes will be compulsorily listed on stock exchanges. Before launching, the schemes should also be valued by a principal valuer empanelled with SEBI. REITs are exempted from making investments in vacant land and none of their schemes should have 15% of funds exposure to a single property project. The schemes should invest only in income generating real estate projects. In case of uncompleted units in a building or units which are in the course of substantial development, the contract value of such real estate must not exceed 20% of the NAV, which will be disclosed on a yearly-basis.The SEBI move comes amid plans by the country’s biggest real estate players, including DLF and Unitech, to raise nearly $5 billion from Singapore Stock Exchange through REITs early next year.

SEBI has drafted a proposal to fast track the launch of mutual fund products. Till now, AMCs had to go through a long process of filing the offer document (OD) and waiting for a go-ahead from SEBI. AMCs would now only have to directly file the final offer document with an additional due diligence certificate from the compliance committee and other basic requirements. Once SEBI confirms the receipt of the standard OD to the AMC (in writing), they would be free to launch the scheme. SEBI, however, retains the power to advise amendments to the offer document in the interest of the investors. To begin with, this process would be adopted for Fixed Maturity Plans (FMPs) and close-ended income schemes. The reason being that they constitute the bulk of new ODs that are filed with SEBI. Moreover, the asset allocations are standard and most of the AMCs have existing schemes.The standard OD would require elaborate instructions on the intended disclosures. According to SEBI, these disclosures would help prospective investors make an informed decision.The final offer document will be posted on the SEBI Web site, accompanied by due diligence certificate from the trustees and additional due diligence certificate from the compliance head and fund manager. The fast-track model is framed after examining the experiences of regulators in Australia, Malaysia, the US and the UK, and customising the framework available in these countries to suit Indian needs.

Action by global majors for a piece in the precious pie - the Indian Mutual fund space … Rigourous regulatory steps in the right direction …A happy combination indeed to enter The NEW YEAR!

Fund Fulcrum
(December 2007)

The net inflow into the mutual fund industry in 2007 has been Rs 11865 crores, almost a third of what it was in 2006 (Rs 33465 crores). 70% of the money came in from the existing mutual funds inspite of the fact that the number of NFOs increased from 39 to 48. The reason for this sparse flow can be attributed to the fact that in 2006, the markets had a secular rise whereas in 2007, as many as 3 corrections were seen coupled with the new norms like the amortisation of fund expenses and the regulations regarding pan card which applied brakes on the forward march. Besides, a lot of money has been diverted towards ULIPs and FMPs.

All CRISIL mutual fund indices ended November 2007 on a positive note. The mutual fund industry`s assets under management (AUM), however, fell to Rs 5.42 lakh crore in November, against an all-time high of Rs 5.60 lakh crore recorded in October 2007. Twenty-two of the total thirty-two fund houses registered a decrease in their AUM, with debt funds being the main culprit. The decline in AUM can be attributed to a combination of a tightening of liquidity for banks and corporate investors, equity market volatility, outflow on account of mega IPOs like Mundra Port and the festive season during the month where individual investors typically end up withdrawing money. Reliance Mutual Fund continued to be the largest fund house, with an AUM of Rs 77,764 crores, followed by ICICI Prudential Mutual fund with an AUM of Rs 54,903 crores, while UTI Mutual Fund was at the third place with an AUM of Rs 52,200 crores.

Piquant parade

On the pattern of the National Investment Fund, the Post and Telegraph wing of the Government under the Communication Ministry is entrusting Rs.9000 crores under Postal Life Insurance and Rs.1625 crores under Rural Postal Life Insurance to UTI and SBI, which will launch two new mutual fund schemes to manage them. Being a competitor to postal life insurance, LIC was not selected.

Mirae Asset, a Korean independent financial service provider, is foraying into the Indian mutual fund space with an investment of Rs.200 crores, having secured the license from SEBI to start mutual fund operations. The fund plans to introduce 6-8 equity products and 3-4 debt products over the next 18 months and operate in 23 cities. It has filed an offer document to launch MIRAE Asset Asia Pacific Opportunities Fund.

Realty major DLF is awaiting regulatory clearance for its 39% joint venture with Prudential Financial Inc.(US), the world's 14th largest institutional asset manager with an AUM of S$637bn. The two companies will jointly invest $50 million in the new company, DLF Pramerica Asset Managers Pvt Ltd., which is expected to start operations in the next financial year.

Eton Park, a leading global investor, proposes to acquire a 5% stake in Reliance Capital Asset Management Ltd. for Rs5.01bn. Eton Park currently manages over US$10bn through its offices in New York, London and Hong Kong. The proposed investment values Reliance Capital at approximately 13% of its AUM. Few months ago, Dutch asset management company, Robecco valued Canara Bank Mutual Fund at a whopping 12% of its AUM. The ruling rate was about 4 % a couple of years ago. This dramatically improves the situation for UTI Mutual Fund, which plans to go public early next year.

MPC Synergy, a joint venture between Germany's MPC Capital AG and Switzerland-based Synergy Asset Management SA, has earmarked around $200-300 million for setting up its mutual fund operations in India either through an acquisition or a joint venture by early 2008.

India Infoline Ltd. and Almondz, a Delhi based financial service provider have decided to seek Board approval for sponsoring of mutual fund and setting up of an Asset Management Company.

SBI Mutual Fund is now in talks with some banks in the Middle-East for tie-ups to sell its products. Reliance Mutual Fund has concluded a pact with New India Co-op Bank for distributing its products. UTI Mutual Fund has tied up with Standard Chartered bank and Citibank N.A. for distribution of its mutual fund schemes.

The acquisition of Standard Chartered's mutual fund business in India by the Swiss banking giant UBS has hit a roadblock. The Reserve Bank of India (RBI) has rejected the deal which was announced earlier this year, citing existing restrictions on transfer of shares in a non-banking finance company. India is the only country where StanChart has an AMC business. StanChart owns 74.99% in the AMC, while the bulk of the balance was with the Atul Choksey group of companies, which sold it to UBS. There were initially around 19 bidders for the AMC business. Aviva, which was one of the highest bidders, walked out of the race. StanChart may look for a new buyer for the AMC or retain the AMC, given the changing market dynamics.

To be continued…

Fund Fulcrum
(December 2007)

The net inflow into the mutual fund industry in 2007 has been Rs 11865 crores, almost a third of what it was in 2006 (Rs 33465 crores). 70% of the money came in from the existing mutual funds inspite of the fact that the number of NFOs increased from 39 to 48. The reason for this sparse flow can be attributed to the fact that in 2006, the markets had a secular rise whereas in 2007, as many as 3 corrections were seen coupled with the new norms like the amortisation of fund expenses and the regulations regarding pan card which applied brakes on the forward march. Besides, a lot of money has been diverted towards ULIPs and FMPs.

All CRISIL mutual fund indices ended November 2007 on a positive note. The mutual fund industry`s assets under management (AUM), however, fell to Rs 5.42 lakh crore in November, against an all-time high of Rs 5.60 lakh crore recorded in October 2007. Twenty-two of the total thirty-two fund houses registered a decrease in their AUM, with debt funds being the main culprit. The decline in AUM can be attributed to a combination of a tightening of liquidity for banks and corporate investors, equity market volatility, outflow on account of mega IPOs like Mundra Port and the festive season during the month where individual investors typically end up withdrawing money. Reliance Mutual Fund continued to be the largest fund house, with an AUM of Rs 77,764 crores, followed by ICICI Prudential Mutual fund with an AUM of Rs 54,903 crores, while UTI Mutual Fund was at the third place with an AUM of Rs 52,200 crores.

Piquant parade

On the pattern of the National Investment Fund, the Post and Telegraph wing of the Government under the Communication Ministry is entrusting Rs.9000 crores under Postal Life Insurance and Rs.1625 crores under Rural Postal Life Insurance to UTI and SBI, which will launch two new mutual fund schemes to manage them. Being a competitor to postal life insurance, LIC was not selected.

Mirae Asset, a Korean independent financial service provider, is foraying into the Indian mutual fund space with an investment of Rs.200 crores, having secured the license from SEBI to start mutual fund operations. The fund plans to introduce 6-8 equity products and 3-4 debt products over the next 18 months and operate in 23 cities. It has filed an offer document to launch MIRAE Asset Asia Pacific Opportunities Fund.

Realty major DLF is awaiting regulatory clearance for its 39% joint venture with Prudential Financial Inc.(US), the world's 14th largest institutional asset manager with an AUM of S$637bn. The two companies will jointly invest $50 million in the new company, DLF Pramerica Asset Managers Pvt Ltd., which is expected to start operations in the next financial year.

Eton Park, a leading global investor, proposes to acquire a 5% stake in Reliance Capital Asset Management Ltd. for Rs5.01bn. Eton Park currently manages over US$10bn through its offices in New York, London and Hong Kong. The proposed investment values Reliance Capital at approximately 13% of its AUM. Few months ago, Dutch asset management company, Robecco valued Canara Bank Mutual Fund at a whopping 12% of its AUM. The ruling rate was about 4 % a couple of years ago. This dramatically improves the situation for UTI Mutual Fund, which plans to go public early next year.

MPC Synergy, a joint venture between Germany's MPC Capital AG and Switzerland-based Synergy Asset Management SA, has earmarked around $200-300 million for setting up its mutual fund operations in India either through an acquisition or a joint venture by early 2008.

India Infoline Ltd. and Almondz, a Delhi based financial service provider have decided to seek Board approval for sponsoring of mutual fund and setting up of an Asset Management Company.

SBI Mutual Fund is now in talks with some banks in the Middle-East for tie-ups to sell its products. Reliance Mutual Fund has concluded a pact with New India Co-op Bank for distributing its products. UTI Mutual Fund has tied up with Standard Chartered bank and Citibank N.A. for distribution of its mutual fund schemes.

The acquisition of Standard Chartered's mutual fund business in India by the Swiss banking giant UBS has hit a roadblock. The Reserve Bank of India (RBI) has rejected the deal which was announced earlier this year, citing existing restrictions on transfer of shares in a non-banking finance company. India is the only country where StanChart has an AMC business. StanChart owns 74.99% in the AMC, while the bulk of the balance was with the Atul Choksey group of companies, which sold it to UBS. There were initially around 19 bidders for the AMC business. Aviva, which was one of the highest bidders, walked out of the race. StanChart may look for a new buyer for the AMC or retain the AMC, given the changing market dynamics.

To be continued…

NFO Nest

Raining Real Estate NFOs!

ING Global Real Estate Fund and ICICI Real Estate Securities Fund NFOs closed a couple of days ago, with the former investing in overseas real estate mutual fund schemes, Real Estate Investment Trusts (REITs) and Real Estate Operating Companies (REOCs), and the latter being a three-year close-ended fund that takes the debt route to investing in realty. This is a unique fund that provides investors with an avenue to earn higher yields, with contained risk. The only other fund focused on real estate is the JM HIFI Fund, an open end equity-oriented fund.

Inundating infrastructure NFOs…more than a third of the NFOs discussed this month are infrastructure funds, adding to the existing gamut of more than a dozen funds.

The following funds find their place in the NFO nest in December, 2007.

Franklin Asian Equity Fund Opens: 19 Nov , 2007 Closes:18 Dec , 2007

Franklin Asian Equity Fund is an open-ended fund which will invest in companies in the Asian region, excluding Japan. As per the stated asset allocation, the scheme will deploy at least 50 per cent of its assets in foreign equity while the domestic equity can go up to 40 per cent. Overall, equity and equity linked instruments would account for at least 70 per cent of the portfolio while up to 30 per cent may be invested in fixed income securities. This equity fund with less than 65% allocation to domestic shares will be deprived of the capital gains exemption for long-term gains, lower short-term capital gains tax and tax-free dividend.

JM Agri and Infra Fund Opens: 19 Nov, 2007 Closes: 18 De , 2007

JM Agri & Infra Fund is a close-ended equity-oriented scheme that will be converted into an open-ended fund after a specified period. It will invest predominantly in equity / equity related instruments of companies that focus on agriculture and infrastructure development of India.

DBS Chola Small Cap Fund Opens: 20 Nov , 2007 Closes: Dec 20 , 2007

The DBS Chola Small Cap Fund is a three-year close-ended fund that would automatically be converted into an open-ended fund at the end of the said period. It proposes to invest at least 65 per cent of the fund proceeds in equity and equity related securities of small companies and upto 35 per cent may be invested in debt and money market instruments. Here, small cap companies are defined as those whose market capitalisation falls between the highest and the lowest constituent of the BSE Small Cap Index. Lot of proven mid caps are available in the market. Pure small cap oriented funds are very few ( DSPML Small Companies Fund and Sundaram BNP Paribas Select Small Cap).

Kotak Indo World Infrastructure Fund Opens: 27 Nov , 2007 Closes: 22 Dec, 2007

Kotak Indo World Infrastructure Fund seeks to generate long-term capital appreciation by investing in stocks of domestic as well as global infrastructure companies. This fund would automatically be converted into an open ended fund after the expiry of three years.The fund proposes to invest at least 65 per cent of the fund proceeds into Indian equities. It has an option of investing between 10-35 per cent in overseas infrastructure fund and upto 35 per cent may be invested in debt and money market instruments.The fund has short-listed a global infrastructure fund of T. Rowe Price (to be launched soon) as the vehicle to invest in overseas markets. This offering taps the growth potential of global infrastructure related companies and helps spread the sharp downside risk, which can be particularly useful when Indian infrastructure stocks go out of favour domestically in a market downturn.

Birla Sunlife Special Situations Fund Opens Dec 17: , 2007 Closes: Jan 15 , 2007

Birla Sun Life Special Situations Fund will invest about 80% in equity and the rest in debt. Among equity, the fund would invest in mergers and acquisitions, PE deals, open offers, delisting and buy backs. Fidelity Fund Management runs a similar fund in India which has risen about 48 percent in the last one year and has ICICI Bank and State Bank of India as its top two holdings.

Standard Chartered Small and Mid-cap Equity Fund, Sahara Fortune Child Fund, Tata Growing Economies Infrastructure Fund, Sahara Power Fund, ABN AMRO China Equity Fund, Principal Global Real Estate Equity Fund and Mirae Asset India Opportunities Fund are expected to be launched in the coming months.

Gem Gaze

Dashing Debt Dynamites!

Optimal debt fund management is about generating superior returns with minimal incremental risk. These debt dynamites have been dashing enough to take advantage of opportunity in the midst of volatility, while at the same time, lending stability to your portfolio.

Principal Income Fund

A disciplined approach to credit and interest rate risk makes this the most effective fund in this category. The superior performance in the past seven years is a result of dynamic asset allocation and relative valuation trades. Being quality-conscious, the fund confines itself to AAA-rated corporate bonds and gilts. Its dynamic asset allocation strategy has seen government securities move from 55.6 per cent of the portfolio, when yields were near an all-time low, to 13.3 per cent when bond prices corrected. Within its government securities portfolio too, the fund has been tactful to move between value and momentum stocks depending on the state of the market. The fund has exhibited its vitality by adjusting its average maturity to changes in the market and tiding over sudden swings in assets, unscathed. Slighty high expense ratio is the price the fund has had to pay for this dynamism but superior returns more than make up for this.

Birla Sunlife Income Fund

Birla Sunlife Income fund, formerly known as Alliance Income Fund, has been in existence since March, 1997. Safety and quality are on top of the agenda with a major portion of the portfolio invested in treasury bills (45.79%), AAA-rated corporate bonds (22.94%) and securitized instruments (10.5%). Over the past decade, the fund has put up a sterling performance with a CAGR of almost 10% since inception.

Kotak Bond Regular

Kotak Bond Regular has generated consistent returns since its inception in November 1999, yielding 9.72 per cent per year with a very low expense ratio of 0.89 per cent. The portfolio consists predominantly of quality rated corporate papers (30.52 per cent in non convertible debentures and 9.83 per cent in commercial papers). The fund has parked 31.63 per cent of its net assets in dated gilts, with an average maturity of 8.38 years. On the other side of the spectrum, instruments such as securitised debt are used to increase the average yield of the portfolio. Risk management is accorded top priority and the emphasis on a high yield portfolio has helped keep the fund’s volatility under control.

LIC Bond Fund

LIC Bond Fund has been one of the most consistent performers, thanks to its high exposure of 87.4% to corporate bonds. Importantly, within the fund’s huge corporate bond portfolio, there is a 24.3 per cent holding in AA- and AA+ bonds, higher than its peers. Inspite of its high holding of low-rated paper relative to its peers, its corporate bond portfolio tilted in favour of AAA-rated papers, has helped it achieve stable returns over the past five years. The cut in its average maturity profile from about six years at the end of 2003 to just 1.3 years and the reduction in the exposure to g-secs was done to hedge against rising yields.

UTI Bond Fund

UTI bond Fund, with relatively low volatility and stable returns, is ideal if you have a medium term investing horizon. This is due to conservative positioning with a relatively lower average maturity of its portfolio, a higher weightage of corporate bonds and a portfolio of g-secs, which are of medium-term duration. 61.7 per cent of its holding is in AAA rated bonds, which give strong accruals, and only 10.7 per cent is in g-secs. The fund has seen a slow but sure growth in NAV. UTI Bond has the largest asset base of Rs 388.98 crore among its peers and a low expense ratio of 1.4. During periods of increased volatility, this helps boost the fund's returns.

Debt funds were on a roll till early 2003, when interest rates bottomed out with a steep slide from 14 % to 7 %. This turned the table in favour of administered return schemes such as POMIS, NSC and RBI bonds and saw a drastic reduction in the size of debt funds. Now with the slowing down of the US economy, falling inflation and softening interest rates, the debt dynamites are back with a bang! Get ready for the balancing act…interesting times indeed.

FUND FLAVOUR

Debt Funds

The prodigal son …

“The debt fund I invested in returned only 5% last year. I would be better off (earning nearly double that amount) investing in the fixed deposit of my bank.” So went the common investor refrain... With an average 3-year return of 4.7 per cent, these funds had little to offer investors who were seeing their equity fund portfolios returning 48 per cent in the same period. Bank Fixed Deposits (FD) and Post Office Monthly Investment Schemes (POMIS) had supplanted debt funds. But all this is passe. Debt funds are making a comeback. With interest rates expected to soften in the long term, debt funds are radiating their new-found brilliance.

Time to delve deep into Debt Funds

Fixed Income/ Income/ Debt Funds are funds that invest in short, medium and long-term debt instruments issued by private companies, banks, financial institutions, governments and other entities belonging to various sectors. The debt instruments are obligations on the part of the issuer to pay the principal and interest thereon as per an agreed time schedule. Debt funds are funds that seek to generate fixed current income (and not capital appreciation). So, debt funds distribute a large fraction of their surplus to you. Fixed Income Funds can be further classified into:

Bond Funds

Bond Funds generally invest in bonds with good rating issued by reputed banks, companies and public infrastructure development bodies having fixed maturity and interest rate. Though the focus is on regular income, the capital value of the investments, traded in the open market for the same maturity, may also fluctuate depending on changes in prevailing interest rates. Another investment avenue for funds investing in corporate debt is securitisation transactions. Securitisation involves conversion of a pool of financial assets into a structured financial instrument which can be sold to a buyer and subsequently traded.

Gilt Funds

Gilt Funds invest in gilts which are debt securities, like dated securities and treasury bills, issued by the government. They are called gilts because government security documents used to be issued with their edges coated in gold to emphasise highest security. The values of gilts also fluctuate depending on the varying maturities, prevailing interest rates and the demand for such securities from large institutional investors like banks.

Money Market / Liquid Funds

Money Market Funds invest in the money market - the market for very short term borrowings mostly by banks and other financial institutions to meet immediate requirements. The maturity of such borrowings can be as short as one day. Interest rates will depend on the overall liquidity position in the financial system - high when sufficient funds are not available in the market and vice versa. Money market transactions are highly secure as the borrowers are the best banks and financial institutions. Retail investors cannot participate in money market transactions as the value of individual transactions is very high. Money Market Funds offer an opportunity for retail investors to participate in this relatively more secure and highly liquid market for short term funds.

Diversified Fixed Income Funds invest in all kinds of debt securities like bonds, gilts, money market instruments, etc. They keep their investment options wide and have the flexibility to move from one type of assets to another.

The risk – return trade off

The returns from a debt fund are essentially the weighted average of the returns on each of its investment, weighted by the proportion of invested sum. Returns are determined by the quality of papers and average duration of the portfolio. However, the prices and yields of debt instruments can fluctuate like other investments and so there is some risk inherent even in debt funds and they are not absolutely risk-free as they are often made out to be. Although debt securities are generally less risky than equities, they are subject to interest rate risk, credit risk (risk of default) and delay risk by the issuer at the time of interest or principal payment. To minimize the risk of default, debt funds usually invest in securities from issuers who are rated by credit rating agencies and are considered to be of "Investment Grade". The greater the risk of a debt fund, the higher the potential return.

Dotting on Debt Funds

Investment in debt should necessarily form a part of your portfolio, more so in the case of people on the verge of retirement or those with moderate risk appetite. Debt Funds offer the much needed diversification to a portfolio, thereby, aiding rebalancing and lending good risk-adjusted returns. Debt funds are primed to give good returns along with lower volatility, liquidity, convenience and tax efficiency. Debt Funds have to pay a dividend distribution tax of 15 per cent but dividends from debt funds are exempt from tax. and long-term capital gains from debt funds are taxed at 10 per cent or 20% after reducing the rate of inflation (indexation benefit).

Welcome with moderation and not a banquet!

While there is no doubt about the bond market’s resurgence, you should wait for an easing trend in interest rates backed by a sustained fall in inflation, before committing funds. The bond markets may see some uncertainty in the short term, before they stabilise and rally. Hence, depending on your ability to stomach uncertainty, you can wait for more clarity on interest rates before entering debt funds, or enter them in tranches over the next couple of months.