DLF to Exit Mutual Fund JV With Prudential Financial

DLF Ltd., India's biggest realty company by sales, will exit a mutual fund joint venture in the country with Prudential Financial Inc. because of a proposed regulatory change, a person with direct knowledge of the matter said Monday.

"The move is prompted by a proposed regulatory change, which makes it mandatory for a company to have five years of experience before selling mutual funds," the person, who didn't wish to be named, told Dow Jones Newswires.

The move is also in line with the New Delhi-based company's strategy to focus on real estate development, the person added.

DLF currently owns 39% in the joint venture--DLF Pramerica Asset Managers Pvt. Ltd.--while Prudential owns the remaining 61%.

"DLF will sell its 39% stake to Prudential," the person said, without disclosing details of the likely valuation of DLF's stake in the venture.

Spokespeople from Prudential weren't immediately available for comment.

The person said also that the time frame for DLF's exit from the joint venture is yet to be decided.

In November 2008, DLF and Prudential had received an approval from the markets regulator, the Securities & Exchange Board of India, to jointly sell mutual funds and said they will jointly invest $45 million in DLF Pramerica.

DLF Pramerica was planning to start selling mutual funds in 2009.

Earlier Monday, The Economic Times newspaper reported that DLF plans to exit the venture to reduce its debt of nearly 120 billion rupees ($2.6 billion).

DLF has been exiting its non-core businesses as part of its strategy to focus more on property development. The company's founders recently sold its multiplex-chain, DT Cinemas, to Indian multiplex operator PVR Ltd. The real estate developer also previously announced plans to sell its wind power business.

Still, DLF has a separate life insurance venture with Prudential, DLF Pramerica Life Insurance Co. Ltd., in which the Indian realty firm owns a majority 74% stake, while the remaining stake is held by the U.S.-based insurance company.

"The life insurance business is continuing and is doing very well for DLF," the person said.

The life insurance business began operations in September 2008 with an equity base of 1.1 billion rupees. In November 2008, DLF had said that the companies will jointly infuse 10 billion rupees of capital over next five to six years in the life insurance venture.

Source: http://online.wsj.com/article/SB10001424052748703569004575010112446094370.html

Things to know before investing in Tax Saving Funds

Equity Linked Saving Schemes (ELSS) or tax saving mutual fund schemes as they are otherwise known as, are a popular tax saving investment. The major reason for this popularity has been the introduction of Section 80C of the Income Tax Act, from April 1, 2005. This section allows the investor to invest up to Rs 1 lakh in various investment products and get a tax deduction for the same. The list of investment products also includes ELSS. Earlier, till March 31, 2005, investment in these tax saving schemes only allowed for a tax deduction of up to Rs 10,000 under Section 88.

However, that being said, there are various things an investor needs to keep in mind before deciding to jump into an ELSS investment.

Section 80 C spoils you for choice: As has been mentioned above, ELSS is not the only investment avenue that comes under Section 80C. Other investments such as Life Insurance, Public Provident Fund (PPF), National Savings Certificates (NSCs), Senior Citizen Savings Scheme (SCSS), Post Office Monthly Income Scheme (POMIS) etc also offer a similar tax benefit. Then there are mandatory payments such as your PF, tuition fees of children and even housing loan repayments that are covered under Sec. 80C. Let us say an individual contributes Rs 40,000 to the PPF every year and Rs 30,000 is his provident fund deduction. So for him it makes sense to invest only the remaining Rs 30,000 [Rs 1 lakh – (Rs 40,000 + Rs 30,000) = Rs 30,000] for tax deduction under Sec. 80C. This is primarily because if he invests more than Rs 30,000, he will cross the overall level of Rs 1 lakh and the deduction is limited to Rs 1 lakh.

Lock-in of three years: Like all investment avenues under Section 80C, ELSS funds also involve a certain lock in. In this case the lock in is for three years. Hence an ELSS investment cannot be withdrawn for a period of three years from the date of investment. This lock-in is like a double-edged sword. On the one hand, it fosters long-term investment, which is very essential while investing in equity. And on the other, if you find yourself in a situation where you require funds in an emergency, you will have to resort to other means / investments --- the ELSS fund will be closed to you for three years. Withdrawals are just not allowed, not even with a penalty.

Tax saving schemes carry the risk of investing in equity: ELSS funds are promoted as good investments as they enable the fund manager to take long-term calls on account of the enforced three year lock-in. In other words, the fund manager doesn’t have to worry about keeping funds liquid to cater to daily redemptions that can happen in normal open ended schemes. However, it has to be kept in mind that ELSS funds for all practical purposes are similar to normal diversified equity mutual fund schemes. The funds in these schemes are invested in the stock market. Hence the returns these schemes generate depend on the kind of stocks the fund manager invests in and the overall state of the market. So if an investor invests in a tax saving scheme, and three years down the line, when the lock-in ends and the markets are not doing well, his total returns will take a beating. Yes, this has not happened in the past as the Indian market is in a lateral bull phase (barring the occasional hiccups). However, the potential of capital loss is very much there and it has to be considered. So investors need to consider their risk taking ability in terms of age and responsibility before deciding on investing in ELSS.

The bottom line? Whether ELSS or any other investment, do not invest because the investment offers a tax benefit. Ask yourself whether you would have invested in the particular instrument per se --- the tax benefit should be the incidental icing on the cake. This will ensure that all your investments will be as per your risk profile and goal oriented and not only on for the temporary purpose of saving tax.

Source: http://www.moneycontrol.com/news/mf-experts/things-to-know-before-investingtax-saving-funds_436668.html

India Inc may lose tax cover on MF investments

Capital markets regulator Securities and Exchange Board of India (SEBI) wants the government to scrap tax benefits for corporates investing in mutual funds (MFs), a proposal, if accepted by the government, could deal a body blow to local asset management companies and other firms.

The regulator has also proposed to the government that the securities transaction tax, or STT, which is levied on buying or selling of stocks and on derivatives trade, should be cut by one-third and that a uniform stamp duty be levied and collected by a central agency.

These proposals have been forwarded to the finance ministry, in the run-up to the Budget, said a person with the knowledge of the proposal. The letter to the finance ministry says, “Tax benefits to corporates investing in schemes of mutual funds may be withdrawn.”

It is not just the capital markets watchdog that is uncomfortable with MF industry’s unhealthy dependence on short-term funds from corporates.

Though this helps fund houses grow their assets and boost valuations, policymakers are worried about the systemic implications of any swift outflow of such institutional funds that could hobble some of the fund houses. This was evident during the second-half of 2008, when the Reserve Bank of India (RBI) had to keep liquidity support open to help MFs meet their redemption obligations.

RBI has also been unhappy at the way banks have been parking their surplus with MFs, which in turn finds its way back to banks. The central bank has nudged banks to restrict their investments in MFs.

Any move, either to do away with the tax benefits or to tweak the tax rates, could hurt the local MF industry whose growth is linked to the flow of funds from corporates. Over 50% of the money that Indian MFs attract for their debt schemes comes from corporate treasuries and banks. According to latest data, the assets under management of the Indian MF industry are a little under Rs 7-lakh crore.

SEBI’s proposal is aimed at putting an end to the rampant misuse of debt schemes of MFs by corporates, who park short-term corporate treasury funds to enjoy a tax arbitrage. While income from their treasury operations attract the corporate tax rate of 33.99% (including surcharge and education cess), treasury investments in debt funds attract a dividend distribution tax (DDT) of only 22.66%.

“If the tax benefit is removed, it will discourage corporates from using mutual funds as a treasury instrument... as we want to develop mutual funds as a vehicle for retail investors to take exposure in the securities market,” said a SEBI official.

Recently, RBI had told banks to go slow on their MF investments. In the last fortnight of December 2009, banks withdrew more than Rs 1-lakh crore from MFs. RBI deputy governor Shyamala Gopinath too had expressed her concerns about tax arbitrage through mutual fund investments.

“Mutual funds’ fixed-income products enjoy certain tax exemptions not available to banks. But this is outside the regulatory purview. However, if these policies introduce any vulnerability in the financial system, there is a need to address this through appropriate macroprudential and microprudential regulations,” Ms Gopinath said at a Fixed Income and Money Market Dealers Association (FIMMDA) meet.

SEBI has also asked the government to drastically reduce the securities transaction tax (STT) on equity transactions, as it increases the transaction cost. The regulator has recommended that STT should be slashed by one-third, as the rate has effectively tripled with the withdrawal of STT as a rebate under Section 88E in the last Budget.

Besides proposing a uniform stamp duty that will levied and collected by a central agency and shared among states based on an agreed formula, SEBI has recommended a goods and services tax (GST)-type concept for stamp duty collection on securities trades.

Market players say that there are several anomalies in the stamp duty, as it is levied by states with each levying different rates for different securities instruments. There are also disputes among states. Transaction costs in India are one of the highest in the world, with government levies, such as stamp duty and STT, accounting for almost 75% of the cost.

SEBI also wants Indian Depository Receipts(IDRs), instruments through which Indian investors can invest in equity shares of foreign companies, to be treated as securities for tax purposes. It has also recommend to the government that IDRs should not be taxed on transfer.

Source: http://economictimes.indiatimes.com/markets/indices/India-Inc-may-lose-tax-cover-on-MF-investments/articleshow/5461454.cms