Credit Opportunities Funds are Risky

Best SIP Funds to Invest Online 

Credit opportunities funds continue to rule the bond fund charts and have delivered a healthy 7.3% average return over the past one year. These funds generate returns from interest accrual and typically invest in higher yielding but lower-rated corporate bonds. They also seek opportunities for upgrade in credit rating of underlying securities, which can lead to their price appreciation. 

The higher yield from these funds has attracted huge flows from investors. This category looks particularly tempting now, given that traditional bond funds playing on duration, or interest rates, have been struggling under stiffening bond yields. Experts, however, warn against placing big bets in this space. Although credit opportunities funds have not been affected by unfavourable yield movements, the risk of default in underlying companies is still there. The credit profile of several firms they hold continues to be weak, with many struggling to repay loans on time. 

Worryingly, in a bid to generate higher returns, several credit funds have increased exposure to lower-rated bonds. This exposes investors to high risk, which may not be visible at the outset. "We prefer bond fund investors to play on the safer side. Credit funds expose the investor to unwanted credit risk 

Lower-rated holdings make them risky 
In pursuit of higher returns, these funds have invested in lower rated bonds. 

Investors looking for tactical exposure to this segment may opt for a fund with a cleaner credit quality portfolio—one tilted towards AA or higher-rated securities—rather than an aggressive fund chasing higher yields with a concentrated exposure in very low-rated instruments. Investors should remain selective in the credit space since default risk cannot be efficiently managed given that the domestic corporate bond market remains somewhat illiquid 

SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

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ICICI Prudential Focused Bluechip - Large Cap Equity Fund

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This Large Cap fund is managed by Sankaran Naren, who took over the reins earlier this year after the exit of Manish Gunwani. The fund has a quality bias when picking stocks and uses competitive analysis and applies qualitative filters to identify the best picks within each sector. The fund is run with a benchmark-conscious approach and aligns the portfolio's sector weightings to those of the benchmark. Naren has a quality bias when choosing stocks–he favors companies with robust business models, strong entry barriers, and the ability to scale up without eroding profit margins. The fund has been a steady performer and is expected to perform well across market cycles.

SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

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Mutual Funds Tax on Investments

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Mutual fund investments carry different tax liability for the investor. While some are taxable, others are not if held over a certain period of time under the exemption for long-term capital gains. The returns are taxed under the head 'Income from capital gains' as mentioned under the Income Tax Act.

If you are a mutual fund investor or planning to invest in a fund, it is important to understand the tax implications, be it long-term capital gain tax (LTCG) applicable or the short term gain tax (STCG). The tax incidence would impact your earnings when you redeem your units.

Mutual funds are redeemed on a FIFO basis – first in, first out. The units purchased first are redeemed first, and you have to pay the appropriate capital gains tax on any profit. So, for an SIP that ran from January to December, you redeem and are taxed for your January units first and your December units the last

The MF taxation rules vary for debt and equity funds. For debt funds, the long-term is three years. Any debt fund units held for less than three years qualify for the Short Term Capital Gains (STCG) tax, which is as per your tax slab. Units held longer than three years qualify for the Long Term Capital Gains (LTCG) tax, which is 20.6% with indexation benefit. For equity mutual funds, the long-term is one year. Therefore any units held less than one year qualify for STCG (15.45%), and units held longer than one year qualifies for LTCG, which is tax-exempt

Capital Gains Taxation: Short term and Long term

	Short-term capital gain	Individual /HUF/NRI
	Equity Oriented Schemes	15%
	Non-Equity  Oriented Scheme	Marginal rate of tax
	Money Market Scheme	Marginal rate of tax
	Long-term capital gain	Individual /HUF/NRI
	Equity Oriented Schemes	NIL
	Non-Equity Oriented Scheme	20% after indexation
	Money Market Scheme	20% after indexation

 

Other tax implications

 Securities Transaction Tax (STT) is applicable on all equity shares and mutual funds which are sold on a stock exchange. Any sale which happens on a stock exchange is subject to STT. STT will be deducted only on equity mutual fund units at the time of redemption or switching to other schemes or sale of units and not on their purchase

When STT in paid on the sale of mutual fund Units held for more than 1 year, any gain on sale of units is tax-free.

The rate of STT is 0.001 percent on the sale of units through the stock exchange. STT is deducted at source on sale of mutual fund units. Hence, it is not required to be paid separately by an investor on all sale transactions

There is no TDS for the resident investor. However, TDS is applied to NRI transactions. Further, there is no set-off benefit available for long-term capital loss (LTCL) from equity-oriented funds.

 Dividend Distribution Tax (DDT) is applicable when the investment is made under any scheme opting a dividend option. However, you, as an investor, do not have to pay the taxes on your dividend received because they are exempt in the hands of an investor as defined under the income tax act.

DDT is not applicable on equity oriented schemes but it is applicable on debt schemes or money market and liquid scheme, which is around 28.84% (25%+12% Surcharge+3% Cess). The mutual fund companies pay this DDT on debt schemes, therefore, which simply means your dividend will get taxed whenever you will receive it.

SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com