SEBI has always impressed upon that 'Investor Education is a Critical

component of Investor Protection mandate. Educated investor is

protected investor.' Thus, a wellinformed investor is well protected
investor. Investor education & awareness programs are conducted by SEBI
from time to time through various Investor associations all over the country
and also through various stakeholders viz. Stock Exchanges, Depositories,
Mutual Funds Association and Association of Merchant Bankers etc. SEBI has
a dedicated website for investor education viz. www.investor.sebi.gov.in
In order to educate the investors about Mutual Funds and their operations,
SEBI has prepared a brochure in question-answer format explaining the
fundamental issues pertaining to mutual funds which is available on SEBI
website viz. www.sebi.gov.in under the "FAQ section for Mutual Funds". HDFC
Mutual Fund website viz. www.hdfcfund.com , also displays the same in this
section.
Further, as per SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13,
2012, the Mutual Funds/AMCs are required to annually set apart at least 2
basis points p.a. (i.e. 0.02% p.a.) on daily net assets of the Scheme(s) within
the limits of total expenses prescribed under Regulation 52 of SEBI (MF)
Regulations for investor education and awareness initiatives undertaken.
In view of the above, HDFC Mutual Funds Investor Education and Awareness
Initiatives (IEAI) are undertaken with an intent to position Mutual Funds as a
new way of saving and also to protect the interest of investors. The objective
of IEAI is to provide insightful knowledge and information to investors about
investing in mutual funds and thereby enable them to take informed
investment decisions.
'Investor Education' is an Investor Education and Awareness
Initiative from HDFC Mutual Fund

INVESTOR ATTENTION!
The section 'Investor Education' on this website is a platform for HDFC
Mutual Fund to create awareness and educate investors about Mutual Funds.
It shall not constitute any offer to sell nor is a solicitation of an offer to buy
units of any of the Schemes of HDFC Mutual Fund.

ABOUT MUTUAL FUNDS

A mutual fund is a common pool of money in to which investors with

common investment objective place their contributions that are to be
invested in accordance with the stated investment objective of the scheme.
The investment manager would invest the money collected from the investor
in to assets that are defined/ permitted by the stated objective of the
scheme. For example, an equity fund would invest equity and equity related
instruments and a debt fund would invest in bonds, debentures, gilts etc.

NVESTMENT OPTIONS
Apart from illiquid avenues like real estate, jewellery there are four major
investment avenues available to you, namely :
Debt Instruments
Equity
Money Market Instruments
Mutual Funds

Debt Instruments
Traditionally debt instruments are known for generating a predetermined
income for a given period of time, other than in cases of default. Hence they
are also known as fixed income instruments. Some examples include :
NBFC Deposits
Company Deposits
Bonds
Debentures
Bank Deposits (FDs and savings accounts)
Government Small Savings Schemes (E.g. PPF)

The introduction of Floating Rate securities moves away from the concept of
receiving a fixed rate of interest but suggests a variable rate of interest
based on an underlying factor such as London Interbank Offer Rate (LIBOR)
or Mumbai Interbank Offer Rate (MIBOR). An example of such a security is
a Floating Rate Bond whose interest rate is MIBOR plus 50 basis points,
where MIBOR is variable.

A preference share is a hybrid instrument, which can be categorized as a

fixed income instrument since the investors receive a fixed dividend before
the regular equity holders receive their dividend.

Equity
Is a share in the ownership of a companys assets and earnings. Companies
usually issue equity when they require addition capital to fund their existing
business or expand. At this point of time the company sells part of the
ownership of the company to the public. Listed equities are generally highly
liquid since they are traded in the stock exchange. An investor makes money
from equity through dividends paid out by the company (from its profits) on a
periodic basis as well as capital appreciation as reflected in the stock price,
which fluctuates in the market. Hence an investors returns are directly
related to the performance of the companys business. Equities do not offer
any assured returns, but historically promise the highest return in the long
run, as depicted by the graph below.
Investment Returns (CAGR 1980 1998)

Money Market Instruments

These are the short-term version of debt instruments, which typically have a
maturity of less than one year. Yields are slightly above that of the savings
account rate in the Banks. These usually tend to preserve the investors
initial investment and are usually the least risky asset class from the four
described here.

Mutual Funds
A mutual fund is a common pool of money in to which investors with
common investment objective place their contributions that are to be
invested in accordance with the stated investment objective of the scheme.
The investment manager would invest the money collected from the investor
in to assets that are defined/ permitted by the stated objective of the
scheme. For example, an equity fund would invest equity and equity related
instruments and a debt fund would invest in bonds, debentures, gilts etc.
To know more about the benefits of investing in mutual funds, please click
here.

WHY MUTUAL FUNDS?

Benefits of Mutual Funds

There are numerous benefits of investing in mutual funds and one of the key
reasons for its phenomenal success in the developed markets like US and UK
is the range of benefits they offer, which are unmatched by most other
investment avenues. We have explained the key benefits in this section. The
benefits have been broadly split into universal benefits, applicable to all
schemes, and benefits applicable specifically to open-ended schemes.

Universal Benefits
Affordability
A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc.
depending upon the investment objective of the scheme. An investor can
buy in to a portfolio of equities, which would otherwise be extremely
expensive. Each unit holder thus gets an exposure to such portfolios with an
investment as modest as Rs.500/-. This amount today would get you less
than quarter of an Infosys share! Thus it would be affordable for an investor
to build a portfolio of investments through a mutual fund rather than
investing directly in the stock market.
Diversification
The nuclear weapon in your arsenal for your fight against Risk. It simply
means that you must spread your investment across different securities
(stocks, bonds, money market instruments, real estate, fixed deposits etc.)
and different sectors (auto, textile, information technology etc.). This kind of
a diversification may add to the stability of your returns, for example during
one period of time equities might underperform but bonds and money
market instruments might do well enough to offset the effect of a slump in
the equity markets. Similarly the information technology sector might be

faring poorly but the auto and textile sectors might do well and may protect
your principal investment as well as help you meet your return objectives.
Variety
Mutual funds offer a tremendous variety of schemes. This variety is
beneficial in two ways: first, it offers different types of schemes to investors
with different needs and risk appetites; secondly, it offers an opportunity to
an investor to invest sums across a variety of schemes, both debt and equity.
For example, an investor can invest his money in a Growth Fund (equity
scheme) and Income Fund (debt scheme) depending on his risk appetite and
thus create a balanced portfolio easily or simply just buy a Balanced Scheme.
Professional Management
Qualified investment professionals who seek to maximise returns and
minimise risk monitor investor's money. When you buy in to a mutual fund,
you are handing your money to an investment professional who has
experience in making investment decisions. It is the Fund Manager's job to
(a) find the best securities for the fund, given the fund's stated investment
objectives; and (b) keep track of investments and changes in market
conditions and adjust the mix of the portfolio, as and when required.
Tax Benefits
Any income distributed after March 31, 2002 will be subject to tax in the
assessment of all Unit holders. However, as a measure of concession to Unit
holders of open-ended equity-oriented funds, income distributions for the
year ending March 31, 2003, will be taxed at a concessional rate of 10.5%.
In case of Individuals and Hindu Undivided Families a deduction upto Rs.
9,000 from the Total Income will be admissible in respect of income from
investments specified in Section 80L, including income from Units of the
Mutual Fund. Units of the schemes are not subject to Wealth-Tax and Gift-Tax.
Regulations
Securities Exchange Board of India (SEBI), the mutual funds regulator has
clearly defined rules, which govern mutual funds. These rules relate to the
formation, administration and management of mutual funds and also
prescribe disclosure and accounting requirements. Such a high level of
regulation seeks to protect the interest of investors

Benefits of Open-ended Schemes

Liquidity
In open-ended mutual funds, you can redeem all or part of your units any
time you wish. Some schemes do have a lock-in period where an investor
cannot return the units until the completion of such a lock-in period.
Convenience
An investor can purchase or sell fund units directly from a fund, through a
broker or a financial planner. The investor may opt for a Systematic
Investment Plan (SIP) or a Systematic Withdrawal Advantage Plan
(SWAP). In addition to this an investor receives account statements and
portfolios of the schemes.
Flexibility
Mutual Funds offering multiple schemes allow investors to switch easily
between various schemes. This flexibility gives the investor a convenient
way to change the mix of his portfolio over time.
Transparency
Open-ended mutual funds disclose their Net Asset Value (NAV) daily and
the entire portfolio monthly. This level of transparency, where the investor
himself sees the underlying assets bought with his money, is unmatched by
any other financial instrument. Thus the investor is in the know of the quality
of the portfolio and can invest further or redeem depending on the kind of
the portfolio that has been constructed by the investment manager.

PLAN FOR YOUR CHILD'S

EDUCATION
Higher education is getting expensive. Plan early with Mutual Funds.
You always dream of a bright future for your child and thats why you start
saving for his/her education. But as higher education is getting expensive,
your investments in traditional instruments might not live up to your
expectations. Therefore, you should plan for your child's higher education
today by investing in Mutual Funds. They offer a wide range of schemes that
meet your requirements based on your risk appetite, investment horizon and
tax
planning
requirement.

Benefits of Investing in Mutual Funds

Tax efficient returns
Professional management
Low minimum investment amount
Convenience of investing systematically at periodic intervals (SIP)

Systematic Investment Plan (SIP) is an investment technique whereby the

investor invests a fixed sum of money at regular intervals, say once a month
or once a quarter.
For instance, your SIP may involve investing Rs.5000
On the 5th of every month
In a particular scheme of a mutual fund
For the next five years

Most investors think that buying stocks at low prices and selling them when
prices are high is a favourable strategy. But this is hard to achieve and
involves risky variables. A more successful investment strategy is to adopt
the method called Rupee Cost Averaging. Under Rupee Cost Averaging, more
units are purchased when prices are low and fewer units when prices are
high. Imagine investing Rs. 1,000 every month in an equity mutual fund
scheme starting in January. The following table illustrates how this
investment would have behaved from Jan to Dec.

Rupee Cost Averaging - An illustration

Month

NAV Per Unit*

Amount (Rs.)

Units

January

16.240

1,000

61.5764

February

16.266

1,000

61.4779

March

15.123

1,000

66.1244

April

15.266

1,000

65.5050

May

16.845

1,000

59.3648

June

16.991

1,000

58.8547

July

15.501

1,000

64.5120

August

15.114

1,000

66.1638

September

12.774

1,000

78.2840

October

13.848

1,000

72.2126

November

14.566

1,000

68.6530

December

15.111

1,000

66.1770

12,000

788.9056

Total

*NAV as on the 10th every month. The NAVs are illustrative only.

As seen in the table, by investing through SIP, you end up buying more units
when the price is low and fewer units when the price is high. However, over a
period of time these market fluctuations are generally averaged and the
average cost of your investment is often reduced. In the above table the
average cost per unit is approximately Rs. 15.21.

Disclaimer: The illustration above is merely indicative in nature and should

not be construed as investment advice. It does not in any manner imply or
suggest current or future performance of any Mutual Fund Scheme. Rupee
Cost Averaging neither ensures you profits nor protects you from making a
loss in declining markets.
SIP automatically ensures that you buy more at lower prices and less at
higher prices
By investing through SIP, you end up buying more units when the price is low
and fewer units when the price is high. However over a period of time these
market fluctuations are generally averaged and the average cost of your
investment is often reduced.

Why SIP?

Monthly Savings - What your savings may generate

Savings per
month (Rs.)

Total amount
invested

Assumed Rate of return (per

annum)

(for 15 years)

(Rs. in Lacs)

6.00%

8.00%

10.00%

(Rupees in lacs, 15 years later)*

5,000

14.6

17.4

20.9

4,000

7.2

11.7

13.9

16.7

3,000

5.4

8.8

10.4

12.5

2,000

3.6

5.8

8.3

1,000

1.8

2.9

3.5

4.2

*Monthly instalments, compounded monthly, for a 15-year period.

Disclaimer: The illustration above is merely indicative in nature and should
not be construed as investment advice. It does not in any manner imply or
suggest current or future performance of any Mutual Fund Scheme. SIP
neither ensures profits nor protects you from making a loss in declining
markets.

SIP

Other methods of investing

Uncomplicated
largely automatic

Small amounts
funds required

No need to time the

market

Make your best attempt to time

the market

Averages out cost per

Cost per unit depends on your

market timing

unit

and

Good amount of research and

market tracking required

of

Lump sum funds required

Benefits of SIP:
Disciplined investments (Remember, an investors worst enemy is not the stock market,
but his own emotions)
Reach your financial goals
Take advantage of Rupee Cost Averaging, i.e. get more units when prices are low and
buy less when prices are high
Grow your investments with compounded benefits
Do all this effortlessly

THE DIFFICULTY OF TIMING THE

MARKET
Stay invested for the Long Term

Equity markets are influenced by innumerable factors, which determine the

movement of stocks. Due to which it is very difficult to time the market. The
graph alongside shows that if you had invested in stocks (as measured by
the S&P BSE Sensex) on January 1, 1990 and stayed invested till September
30, 2014, you would have earned compounded annual returns of 15.30%
which means
10,000 invested on January 1, 1990, would have

compounded to

3,39,956 on September 30, 2014. The returns drop

drastically if you missed the 10, 20, 30 and 40 best days. A prudent investor
is one who always remains invested for the long term and allows his money
to compound.
Invest through Equity Mutual Funds and enjoy the benefits of compounding
along with diversification and professional management.

Rajiv Gandhi Equity Savings Scheme 2013

Preamble
With an objective to encourage flow of savings and to improve the depth of
the domestic capital market, the Government of India announced a tax
saving scheme in the Union Budget 2012-13 named Rajiv Gandhi Equity
Savings Scheme, 2012. The Scheme aims at widening the retail investor
base in the Indian securities markets and also furthers the goal of financial
stability and financial inclusion. A tax benefit u/s 80 CCG of Income-tax Act is
available to the investors under this scheme.
Further, vide Finance Act, 2013, certain conditions under Rajiv Gandhi Equity
Savings Scheme (RGESS) were liberalized. Ministry of Finance thereafter vide
Notification no. 94/2013 F. No. 142/35/2012 -TPL dated December 18, 2013
notified RGESS, 2013 i.e. the amended RGESS.

Salient Features
Only a New Retail Investor can avail deduction by investing in Eligible Securities in
demat form under this scheme. A new retail investor would mean a person (resident
Indian) not having a demat account or having a demat account but not having done any
trades in the equity or derivative segment
The gross total income of the New Retail Investor should not exceed Rs 12 lacs p.a.
Eligible Securities are from a universe of top 100 companies from S&P BSE 100 or CNX
100, Maharatna, Miniratna, Navratna or securities of PSU, ETFs and Mutual Fund units
Eligible Securities would be subject to a lock in of 3 years as explained in the RGESS
2013 notification
Tax Deduction can be availed for investments made in a block of three consecutive
financial years

Benefits
An investment of Rs 50,000 is eligible for a tax deduction u/s 80 CCG of the Income Tax
Act, 1961 for each financial year. 50% of the amount invested from his total income
subject to a maximum of Rs 25,000 will be permitted for tax deduction
This deduction u/s 80CCG is over and above the deduction available u/s 80C
Dividends earned from equities shares and mutual funds are tax free
Exposure to equities gives a potential of capital appreciation over three years.
Flexible lock in offers some amount of liquidity in investments when compared with
other tax saving instruments

As per Section 80CCG of the Income Tax Act, 1961, a resident individual who
acquires listed equity shares or listed units of equity oriented mutual fund in
accordance with the RGESS, is entitled to a deduction of 50% of the amount
invested from his total income to the extent the deduction does not exceed
Rs.25,000/-. The deduction under Section 80CCG of the Income Tax Act, 1961
is in addition to the deduction available under Section 80C of the Income Tax
Act, 1961. A New Retail Investor shall be eligible for the tax benefit under
RGESS for a block of three consecutive financial years beginning with the
Initial Year (as defined in RGESS), in respect of the investment made in each
financial year.
The deduction shall be subject to following conditions:
The gross total income of the investor for the relevant year does not exceed Rs.12 lakhs
(increased from Rs.10 Lakhs (FY 2012-13) to Rs.12 Lakhs (FY 2013-14));
The investor is a 'New Retail Investor' as specified in RGESS;
The investment is made in such listed equity shares or listed units of equity oriented
mutual fund as specified in RGESS;
The investment is locked-in for a 3 year period as provided in RGESS; and
Such other conditions as may be prescribed by the Ministry of Finance

If an investor, in a subsequent year fails to comply with any of the above

conditions, the taxability would be as provided under RGESS.
Initial Year means:

(a) the financial year in which the investor designates his demat account as
RGESS account and makes investment in the Eligible Securities for availing
deduction under RGESS; or
(b) the financial year in which the investor makes investment in Eligible
Securities for availing deduction under RGESS for the first time, if the
investor does not make any investment in Eligible Securities in the financial
year in which the account is so designated.
For e.g.
Date of designating demat account as RGESS account:

January 1, 2013 i.e. in financial year 2012-13

Date of RGESS investment:

June 1, 2013 i.e in financial year 2013-14.

Therefore initial year will be:

Financial year 2013-14

a) who has not opened a demat account and has not made any transactions
in the derivative segment before the date of opening of a demat account or
the
first
day
of
the
Initial
Year,
whichever
is
later:
Provided that an individual who is not the first account holder of an existing
joint demat account shall be deemed to have not opened a demat account
for the purposes of RGESS; or
(b) who has opened a demat account but has not made any transactions in
the equity segment or the derivative segment before the date he designates
his existing demat account for the purpose of availing the benefit under
RGESS or the first day of the Initial Year, whichever is later
In case of joint accounts, only the first account holder will be considered as
the existing retail investor. All those existing account holders other than the
first demat account holder (eg. second / third account holders or other joint
holders) or nominees of the existing account holders will be considered as
new retail investors for the purpose of opening of a fresh RGESS account, if
otherwise
eligible.
In case the demat account is opened as a first holder, but there are no
transactions in the equity or derivate segment, still in such case the first
account holder can be considered eligible for New Retail Investor.
A new retail investor can invest in one or more financial years in a block of
three consecutive financial years beginning with the initial year as defined
above. The new retail investor shall be eligible for tax benefits under RGESS
only for three consecutive financial years beginning with the initial year, in
respect of the investment made in each financial year.
If the new retail investor does not invest in any financial year following the
initial year, he may invest in the subsequent financial year, within a block of
three consecutive financial years beginning with the initial year, in
accordance with RGESS.
For e.g. : In the block of 3 years, if an investor invests first time in Eligible
Securities under RGESS in the first year i.e. FY 2012-13 and avails deduction.
Suppose, he does not make any investment in the second year, i.e. FY 201314 then he can claim tax deduction u/s 80 CCG only for investments made in
the third year i.e. FY 2014-15.

Introduction to Equity Linked Savings Scheme (ELSS)

Equity Linked Savings Scheme (ELSS) is a type of mutual fund scheme. Going
by its name, ELSS invests its corpus in equity and equity related products. An

investment in ELSS comes with a lock in period and has tax benefits
attached to it. It is suitable for investors having a high risk profile as returns
in ELSS fluctuate depending upon the equity market and there are no fixed
returns. ELSS schemes are open ended in nature, that is, investors can
subscribe to the fund on any day. NAV or the price of the fund is declared on
every business day.

Benefits / Features
3 years lock-in period (lowest compared to other select tax saving options)
Growth potential of equity
Tax free dividends
No tax on long-term capital gains

#An Individual/HUF is entitled to deduction from gross total income for

investments in Equity-Linked Savings Scheme (ELSS) up to
1.5 Lakh

(along with other prescribed investments) under Section 80C of the Incometax Act, 1961.

Tax Deduction under Section 80C**

As per Section 80C and subject to provisions of the Income-tax Act, 1961, an
individual/HUF is entitled to a deduction from Gross Total Income maximum
up to 1.50 Lakhs for prescribed investments which include amounts invested
in ELSS.

The following example illustrates:

(A) Assume Gross Total Income for the financial year is

12,00,000

(B) Investment in ELSS

1,50,000

Income on which tax will be paid (A-B)

10,50,000

Tax Saved on

46,350#

1,50,000/- (Tax Rate assumed: 30%)

# Including education cess @ 2% and secondary and higher education cess @1%

This implies that you will save taxes of

46,350 on investment made in

ELSS. This is along with the returns your investment would possibly earn in
the ELSS.
** Investors should be aware that the fiscal rules/laws may change and there
can be no guarantee that the current tax position may continue indefinitely.
In view of individual nature of tax consequences, each investor is advised to
consult
his/her
own
professional
tax
advisor.

Options while making an investment in an ELSS

Growth option In growth option, income earned by ELSS is not distributed
to unit holders. Any income/profit earned by ELSS increases the NAV of the
option and vice versa. Whenever the investor sells his holdings, he will
realize
long
term
capital
gain/loss.
Dividend option In this option, ELSS distributes income earned by it to the
investors under this option as dividends. The date of distribution is declared
by the fund, however if the ELSS has negative income it will not distribute
any dividend. Any dividend received by the investors, is not liable for tax in
the
hands
of
investors.

Monthly investment in ELSS

Monthly investments on a pre specified date in mutual funds is possible

through systematic investment plan (SIP). An investor has the option of
investing monthly in equity linked savings schemes with a minimum
investment of Rs 500. This type of investment is better suited to small
investors who cannot invest a lump sum amount. SIP has the benefit of
averaging out the cost for investors. As the amount of investment is fixed,
the number of units purchased every month vary depending upon the NAV of
ELSS. At a higher NAV, the investor gets fewer units and more number of
units at a lower NAV, thus averaging out the cost of investment.

FIXED MATURITY PLANS

Fixed Maturity Plan (FMP) is a close-ended debt mutual fund scheme, having
a fixed tenure. FMPs invest in debt and money market instruments. Investors
can invest in FMPs during the New Fund Offer (NFO) period and upon
maturity, the FMPs are compulsorily redeemed and capital with income
thereon is paid back to the investor. FMP investments, if held till maturity,
are not subject to interest rate volatility, making it a preferred investment
option.
Fixed Maturity Plans popularly known as FMPs are close-ended debt mutual
fund schemes. Fixed Maturity Plans (FMPs) as the name suggests are
schemes with a fixed tenure. Investors can invest in FMPs only during the
New Fund Offer (NFO) period. On maturity, the FMPs are compulsorily
redeemed and capital, with income thereon, is paid back to the investor.
FMPs invest in debt securities such as Non Convertible Debentures (NCDs),
Corporate/Government bonds and money market instruments such as
Treasury bills (T-bills), commercial papers (CPs), certificates of deposit (CDs).
To enable investors to take informed decision regarding the quality of

securities and associated risks, the Scheme Information Documents (SID) of

FMPs indicate the instruments and their credit rating in which an FMP
proposes to invest. For e.g. SID may state that an FMP will invest 90-95% of
net assets in AA rated NCDs and 0-5% of net assets in Government
Securities, CBLO etc. Final portfolio must be constructed as indicated. The
underlying debt instruments invested mature in line with the tenure of the
scheme.
Typically, the tenure for an FMP can range from as low as 30 days to as high
as 132 months. The NFO of Fixed Maturity Plans would typically remain open
for 1 to 15 days. Generally the scheme name would reflect the tenure of the
FMP. Units would be allotted within five working days after the date of close
of the NFO.

Can an investor redeem units of FMPs before its maturity?

As FMPs are close-ended schemes which mature at a pre determined date,
the Units of FMPs cannot be redeemed by the investors directly with the Fund
until the Maturity/Final Redemption date. Units of an FMP are compulsorily
listed on a stock exchange and a unit holder can exit prior to the maturity
date by selling the units on the stock exchange through a stock broker.

Difference
schemes

between

FMPs

and

other

open-ended

debt

(I) In open-ended debt schemes, Units are available for purchase and sale on
every Business Day unlike FMPs which can be subscribed only during the
NFO period and is redeemed (automatically) only on maturity. Alternatively,
investor can buy/sell units of FMP, on stock exchange where the FMP is listed
during its tenure. (II) Open-ended debt schemes have no maturity date
whereas FMPs have a defined tenure and is automatically terminated on
completion of the defined period.
As FMPs can invest in securities that mature on or before the maturity date
of a FMP, the investors of FMPs who prefer to stay invested till its maturity
are not subjected to interest rate risk arising out of fluctuation in interest
rate unlike other open-ended debt schemes.

How are earnings from FMPs taxed?^^

Resident Investors

Mutual Fund

Dividend
Income

Nil

Dividend Distribution Tax (DDT):

Individual / HUF- 28.325%*
Others- 33.99%* (Refer Note
below)

Capital Gains:
Long Term

10% without indexation / 20% with indexation

(plus applicable surcharge and education cess)

Nil

Short Term

Income tax rate applicable to the Unit holders

as per their income slabs.

Nil

*including applicable surcharge, education cess and secondary and higher

education cess.
Note:
On income distribution, if any, made by a Mutual Fund, additional income tax
is payable under section 115R of the Act, in the case of other than equity
oriented funds. An equity oriented fund is a fund where the investible funds
are invested by way of equity shares in domestic companies to the extent of
more than 65% of the total proceeds of such fund.
^^The information given herein is as per the prevailing tax laws. Investors
should be aware that the fiscal rules/tax laws may change and there can be
no guarantee that the current tax position may continue indefinitely. In view
of individual nature of tax consequences, please consult your professional
tax advisor.

Fixed Maturity Plans are ideal for investors:

Who do not want to invest in open ended schemes and time their entry/exit

Investors who want to lock in their investment at the prevailing yields of the
underlying debt instruments and realise the same at maturity

Whose investment horizon matches the tenure of the Plan

Investors who want lower volatility in the returns

Investors looking for better post tax returns by taking the benefits of indexation
in FMPs of more than 1 year tenure

Liquid funds are open ended high liquidity income schemes that invest in debt
and money market instruments with maximum maturity of upto 91 days only.
Hence, the average maturity of a liquid fund is low (<= 91 days). This strategy
helps:

mitigate risk arising out of interest rate volatility

b) provide high liquidity to the portfolio and
c) generate stable income.

Low risk

Note: Risk is represented as:

(BLUE) investors
understand that
their principal will
be at low risk

(YELLOW))
investors
understand that
their principal
will be at
medium risk

(BROWN)investors
understand that
their principal will be
at high risk

Due to the typical structuring of investment portfolio, i.e. since liquid funds hold very
short term instruments and during which the chances of interest rate fluctuations are
lesser, liquid funds are categorized as low risk products from liquidity and interest rate
risk perspective. Returns on these schemes fluctuate much less compared to other
funds. Further, the probability of the credit risk i.e. the risk of default is also low due to
short maturity of investment portfolio. The credit risk is mitigated by investments based
on evaluation of credit fundamentals such as outlook on the sector, parentage, quality
of management, credit ratings and overall financial strength of the credit, etc.

Typically, such funds invest in the following instruments having maximum/ residual
maturity of upto 91 days:
1. Bank Certificate of Deposits
2. Bank Fixed Deposits
3. Treasury Bills
4. Bill Rediscounting
5. Commercial Paper
6. Collateralised Borrowing & Lending Obligation
7. Other debt securities with residual maturities upto 91 days

In view of the investment restriction mentioned above, the volatility in returns is low thereby
generating stable stream of income in line with prevailing yield on underlying debt/ money

market instruments. Other open-ended debt funds invest in a range of debt and money market
instruments with no restrictions on the maturity of the instrument except the mentioned in their
respective Scheme Information Documents.
Additionally, liquid funds are unique when compared to other debt funds with respect to
applicability of Net Asset Value (NAV). As per the applicable guidelines, the NAV of liquid
funds is computed for 365 days unlike other debt mutual funds where NAV is computed for
business days only.
In case of other debt funds for purchase applications received within the cut-off time (3.00 PM)
having value upto Rs. 2 lakhs, the NAV as at the end of the day of the application, is applied. For
applications of more than Rs. 2 lakhs, within the cut-off time (i.e. 3 p.m.) the allotment of units is
subject to realization of funds.
However, in case of liquid funds, for all transactions irrespective of the value of investment
received within the cut-off time (i.e. upto 2 p.m.) where money is also realized within the cut-off
time, the units are allotted as per previous day NAV. For e.g. if a purchase transaction in a liquid
fund is submitted on Monday before 2 p.m. and amount is also realized by 2 p.m. on Monday,
then NAV of Sunday is applicable. Similarly, when redemption request is submitted on Friday,
then applicable NAV for redemption is of Sunday, i.e. the day before the next business day.
Essentially, your investments generate returns for every single day of investment. Liquid funds
offer high liquidity as all redemptions payouts are normally credited to the bank account on the
next working day. Further, as the objective is to provide high liquidity, liquid funds generally
have no exit loads.
Beniifits
Access to wholesale debt/ money markets with low amount of investment
2. Potential to earn higher income than alternative options like parking money in a savings bank
account or a current account where there is no income
3. Tax efficient returns (refer table below)
4. Flexibility of investment options like growth and dividend with daily/ weekly/ monthly
frequencies
5. As a conduit to transfer funds systematically to other schemes such as equity funds Liquid
funds are short term investment products ideal for parking surplus money pending deployment or
for meeting contingencies.
Resident
Investors

Mutual Fund

Dividend
Income

Nil

Dividend Distribution Tax (DDT)

Individual / HUF 28.325%* Others

33.99%* (Refer Note below)

Capital Gains:

Long Term

10%*/20%*

Nil

Short Term

Income tax rate applicable to

the Unit holders as per their
income slabs.

Nil

MF UTILITY
As you are aware, MF Utility has been launched by the Asset Management
Companies (AMCs) under the aegis of AMFI for the benefit of investors.
Any investor can take advantage of the facilities provided by MFU. You can
use the MFU form and submit to any of the Karvy / CAMS offices who are the
Point of Service (POS) for MFU.

FACILITIES
Using CAN TRANSACTION FORM, you can submit transactions in schemes across Mutual
Funds in a single form. The transactions covered are Purchase, Redemption, Switch, SIP,
STP and SWP; where up to 5 transactions can be submitted in a single form across
AMCs. MFU Forms are available at www.mfuindia.com/forms For this purpose, you
should have opened a Common Account Number (CAN) from MFU.
CAN is a folio at the Mutual Fund industry level. Once a CAN is opened, you are free to
invest in any Mutual Fund without any requirement to open one more Account with that
Mutual Fund. You can open CAN by submitting CAN Registration Form (CRF) at any ONE
of the MFU Point of Service (POS); i.e. CAMS or KARVY front offices.
Once CAN is opened, you can use a single MFU CAN Transaction Form (CTF) for making
multiple transactions in schemes across Mutual Funds. There are different CTFs
available for Purchases, Redemptions, Switches, SIP Registrations, STP Registrations and

SWP Registrations. For the multiple SIPs Registered through a CTF, you need to submit
only one Common Mandate.
Investors who are yet to open CAN, can use a single MFU Folio Transaction Form (FTF)
for purchase, investments can be made in up to 5 schemes of a single Mutual Fund
under an existing folio. Similarly, there are specific MFU Folio Transaction Forms (FTF) for
redemptions and switches also which allow up to 5 transactions in a single form.
You

can

submit

all

these

POS http://www.mfuindia.com/MFUPOS for

forms
any

at
schemes

any
of

ONE
the

of

the

participating

AMCs http://www.mfuindia.com/ParticipatingAMCs, irrespective of the RTA that is serving

that AMC.

Other incidental facilities:

Using MFU forms means you need not hop from one office to another for submitting
transactions
Using MFU forms provides a common time-stamp for all the transactions in the form.
This eliminates the risk of partial scheme transactions getting todays time-stamp and
the rest the next day.
Once CAN is opened, all your existing folios will get mapped to the CAN, thereby
providing a single investment view of all the investments since inception.
Single Payment can be made for the total of all investments in the single form,
favouring MFU ESCROW ACCOUNT which will be realised as a single credit, thereby
providing uniform credit availability for all investments in the form. This reduces the risk
of different scheme transactions getting different NAV.
5. Above all, no need to carry bunches of forms of various AMCs while transacting. You
need ONLY the MFU forms which are COMMON for all the AMCs listed with us.

AXATION INFORMATION
Tax treatment for the Investors (Unit Holders)

The information given is included only for general purpose and is based on advise
received by the AMC regarding the law and practise currently in force in India and
the Investors/ Unit holders should be aware that the relevant fiscal rules or their

interpretation may change. As is the case with any investment, there can be no
guarantee that the tax position or the proposed tax position prevailing at the time
of an investment in the Scheme will endure indefinitely. In view of the individual
nature of tax consequences, each Investor / Unit holder is advised to consult his /
her

own

professional

tax

advisor.

As per the taxation laws in force and Chapter VII of the Finance (No. 2) Act, 2004
pertaining to Securities Transaction Tax (STT), the tax benefits / consequences as
applicable, to the HDFC Mutual Fund in respect of its Mutual Fund schemes (being
an equity oriented fund / other than equity oriented fund / money market mutual
fund / liquid fund) and investors investing in the Units of its Mutual Fund Schemes
[on the assumption that the units are not held as stock-in-trade] are stated as
follows:

1. Tax

Benefits

Consequences

to

the

Mutual

Fund

HDFC Mutual Fund is a Mutual Fund registered with the Securities & Exchange
Board of India and hence the entire income of the Mutual Fund will be exempt
from income-tax in accordance with the provisions of Section 10(23D) of the
Income-tax

Act,

1961

(the

Act).

The Mutual Fund will receive all income without any deduction of tax at
source

under

the

provisions

of

Section

196(iv)

of

the

Act.

On income distribution, if any, made by the Mutual Fund, additional incometax is payable under section 115R of the Act, in the case of its Schemes
(other than equity-oriented funds i.e. such fund where the investible funds
are invested by way of equity shares in domestic companies to the extent of
more

than

65%

of

the

total

proceeds

of

such

fund).

Upto May 31, 2011, the additional income-tax on distribution of income to an

individual / Hindu Undivided Family (HUF) shall be payable by the mutual fund
at the rate of 13.519% (including applicable surcharge, education cess and
secondary and higher education cess) and at the rate of 21.63% (including
applicable surcharge, education cess and secondary and higher education
cess) on distribution of income to any other investor. The additional incometax on distribution of income by a money market mutual fund or a liquid fund

shall be payable at the rate of 27.038% (including applicable surcharge,

education

cess

and

secondary

and

higher

education

cess).

With effect from June 1, 2011, the additional income-tax on distribution of

income by a money market mutual fund or a liquid fund to an individual / HUF
shall be payable by the mutual fund at the rate of 27.038% (including
applicable surcharge, education cess and secondary and higher education
cess) and at the rate of 32.445% (including applicable surcharge, education
cess and secondary and higher education cess) on distribution of income to
any other investor. The additional income-tax on distribution of income by
any other fund to an individual/ HUF shall be payable at the rate of 13.519%
(including applicable surcharge, education cess and secondary and higher
education cess) and at the rate of 32.445% (including applicable surcharge,
education cess and secondary and higher education cess) on distribution of
income

to

any

other

investor.

As per the Act, a money market mutual fund means a money market mutual
fund as defined in the SEBI (Mutual Fund) Regulations, 1996 and a liquid fund
means a scheme or plan of a mutual fund which is classified by the SEBI as a
liquid fund in accordance with the guidelines issued by it in this behalf under
the

SEBI

Act,

1992

or

regulations

made

thereunder.

The availability of credit for dividend distribution tax in the hands of the nonresident investor would depend upon the tax laws of the country of which he
is a resident and/ or the applicable tax treaty of such country with India.
Securities

Transaction

Tax

(ii) Securities Transaction Tax (STT)

STT is levied on the value of taxable securities transactions as under:

Transaction

Rate
s

Payable By

Purchase/ Sale of equity shares

0.1%
*

Purchaser/Se
ller

Purchase of units of equity oriented mutual fund (delivery

based ) on recognized stock exchange #

Nil

Purchaser

Sale of units of equity oriented mutual fund (delivery

based ) on recognized stock exchange #

0.001
%

Seller

Sale of equity shares, units of equity oriented mutual fund

(non delivery based)

0.025
%

Seller

Sale of an option in securities

0.017
%

Seller

Sale of an option in securities, where option is exercised

0.125
%

Purchaser

Sale of a futures in securities #

0.010
%

Seller

Sale of unit of an equity oriented scheme to the Mutual

Fund #

0.001
%

Seller

# Effective from 1st June, 2013.

2. Tax

Benefits

Consequences

to

Unit

i.

holders
Income-tax

All

Unit

holders

Income received, otherwise than on transfer (subject to the exemption of

long-term capital gains provided for in section 10(38) of the Act, discussed
elsewhere in this Statement), in respect of units of a mutual fund would be
exempt

from

tax

under

Section

10(35)

of

the

Act.

Tax

Deduction

All

at

Source

Unit

holders

No income-tax is deductible at source, on any income distribution by the

Mutual Fund under the provisions of Section 194K and 196A of the Act.
Capital

Gains

Foreign

Tax

Institutional

Investors

Long-term capital gains on sale of Units, held for a period of more than twelve
months, would be taxed at the rate of 10% (plus applicable surcharge,
education cess and secondary and higher education cess) under Section
115AD of the Act (subject to the exemption of long-term capital gains
provided for in section 10(38) of the Act, discussed elsewhere in this
Statement). Such gains would be calculated without indexation of cost of
acquisition. Short-term capital gains would be taxed at 30% (plus applicable
surcharge, education cess and secondary and higher education cess) (subject
to the concessional rate of tax provided for in Section 111A of the Act,
discussed

elsewhere

in

this

Statement).

As per Section 111A of the Act, short-term capital gains on sale of units of an
equity-oriented fund, where such transaction of sale is chargeable to STT,
shall be subject to tax at a rate of 15 per cent (plus applicable surcharge,
education

cess

and

secondary

and

higher

education

cess).

Exemption of capital gain from income tax

As per Section 10(38) of the Act, any long-term capital gains arising

from the sale of units of an equity-oriented fund where such transaction of

sale

is

chargeable

to

STT,

shall

be

exempt

from

tax.

Income by way of long term capital gain of a company shall be taken into
account in computing the Book profit and income-tax payable under Section
115JB (Minimum Alternate Tax)[MAT]. The matter is however not free from
doubt

in

case

of

Corporate

Foreign

Institutional

Investors.

Other Unit holders

o

Long-term capital gains in respect of Units, held for a period of more

than twelve months, will be chargeable under Section 112 of the Act, at
concessional rate of tax, at 20% (plus applicable surcharge, education cess

and secondary and higher education cess) (subject to the exemption of longterm capital gains provided for in Section 10(38) of the Act, discussed
elsewhere in this Statement).
The following amounts would be deductible from the full value of

consideration, to arrive at the amount of capital gains:

Cost of acquisition of Units (as adjusted by Cost Inflation Index

notified by the Central Government in case of long term capital gain) and
Expenditure incurred wholly and exclusively in connection with

such

transfer

(excluding

any

sum

paid

on

account

of

STT)

However, where the tax payable on such long-term capital gains,

exceeds 10% (plus applicable surcharge, education cess and secondary and higher
education cess) of the amount of capital gains computed before indexation, such
excess

tax

shall

not

be

payable

by

the

Unit

holder,

at

his

option.

In case of resident individuals and Hindu Undivided Families, where

taxable income as reduced by long-term capital gains, is below the basic exemption
limit, the long-term capital gains will be reduced to the extent of the shortfall and
only the balance long-term capital gains will be subjected to the flat rate of incometax

(plus

education

cess

and

secondary

and

higher

education

cess).

As per Section 111A of the Act, short-term capital gains on sale of units of an equity
oriented fund where such transaction of sale is chargeable to STT shall be subject to
tax at a rate of 15 per cent (plus applicable surcharge, education cess and
secondary and higher education cess). Further in case of resident individuals and
HUFs where taxable income as reduced by short-term capital gains, is below the
basic exemption limit, the short-term capital gains will be reduced to the extent of
the shortfall and only the balance short-term capital gains will be subjected to the
flat rate of income-tax (plus education cess and secondary and higher education
cess).
Exemption of capital gain from income tax
As per Section 10(38) of the Act, any long-term capital gains arising

from the sale of units of an equity-oriented fund where such transaction of sale is
chargeable

to

STT,

shall

be

exempt

from

tax.

Income by way of long term capital gain of a company shall be taken into account in

computing the Book profit and income-tax payable under Section 115JB [MAT].
As per the provisions of section 54EC of the Act and subject to the

conditions and investment limits specified therein, capital gains (subject to the
exemption of long-term capital gains provided for in section 10(38) of the Act,
discussed elsewhere in this Statement), arising on transfer of a long- term capital
asset shall not be chargeable to tax to the extent such capital gains are invested in
certain

notified

bonds

within

six

months

from

the

date

of

transfer.

As per the provisions of Section 54F of the Act and subject to the

conditions specified therein, in the case of an individual or a HUF, capital gains

(subject to the exemption of long-term capital gains provided for in section 10(38)
of the Act, discussed elsewhere in this Statement) arising on transfer of a long term
capital asset (not being a residential house) are not chargeable to tax if the entire
net consideration received on such transfer is invested within the prescribed period
in a residential house. If part of such net consideration is invested within the
prescribed period in a residential house, then such gains would not be chargeable to
tax on a proportionate basis. For this purpose, net consideration means full value of
the consideration received or accruing as a result of the transfer of the capital asset
as reduced by any expenditure incurred wholly and exclusively in connection with
such transfer.
All

Unit

holders

Under the provisions of Section 94(7) of the Act, loss arising on sale of Units, which
are bought within 3 months prior to the record date (i.e. the date fixed by the
Mutual Fund for the purposes of entitlement of the Unit holders to receive income or
additional units without any consideration, as the case may be) and sold within 9
months after the record date, shall be ignored for the purpose of computing income
chargeable to tax to the extent of exempt income received or receivable on such
Units.
Under the provisions of Section 94(8) of the Act, where any person purchases units
('original units') within a period of 3 months prior to the record date, who is allotted
additional units without any payment and sells all or any of the original units within
a period of 9 months after the record date, while continuing to hold all or any of the
additional units, then any loss arising on sale of the original units shall be ignored
for the purpose of computing income chargeable to tax. The amount of loss so
ignored shall be deemed to be the cost of purchase of the additional units as are

held

on

the

Tax

date

Deduction

All

of

such

sale.

at

Source

Unit

holders

No income-tax is deductible at source from income by way of capital gains under

the present provisions of the Act in case of residents. However, the provisions of
section 195 of the Act may apply to non-residents (other than Foreign Institutional
Investors and long-term capital gains exempt under section 10(38) of the Act).

Tax deducted at source pertaining to NRI Investors$

Short Term Capital

Gain

Long Term Capital

Gain

Equity Oriented Schemes

16.995% ##

Nil

Other than Equity Oriented

schemes (Listed)

30.99%

22.66%@

Other than Equity Oriented

schemes (Unlisted)

30.99%

11.33%

##

Subject

to

NRI's

having

Permanent

Account

Number

in

India

$ As per the Finance Act 2012, with effect from July 1, 2012, a list of transactions is
proposed to be specified, wherein the rate for tax deduction at source needs to be
determined by the assessing officer. In case the transaction of sale of mutual fund
units by an NRI gets covered within such list, then an application would be required
to be made to the assessing officer to determine the tax deduction at source rate
@

after

providing

for

indexation

In the case of foreign companies the rate of tax to be deducted at source on shortterm capital gains referred to in section 111A would be 15% (plus applicable
surcharge, education cess and secondary and higher education cess) and at the
rate of 40% (plus applicable surcharge, education cess and secondary and higher
education cess) in case of short-term capital gains (other than under section 111A),

unless a lower withholding tax certificate is obtained from the tax authorities, and at
the rate of 20% (plus applicable surcharge, education cess and secondary and
higher education cess) in case of long term capital gains, unless a lower withholding
tax

certificate

is

obtained

from

the

tax

authorities.

With effect from 1 April 2010, where tax is deductible under the Act, and the
deductee has not furnished a Permanent Account Number (PAN) to the deductor, tax
should

be

deducted

at

source

at

the

highest

of

the

following

At the rate specified in the Act

At the rates in force

At the rate of 20% (plus applicable surcharge and education cess and

rates:

secondary and higher education cess )

Gift of Units
With effect from 1.10.2009, as per the provisions of section 56(2)(vii) of the Act,
certain specified property transferred, without consideration / adequate
consideration, exceeding specified limits, are taxable in the hands of the recipient
individual / HUF (subject to certain exceptions).
The term "property" includes shares and securities. Units of a mutual fund could fall
within the purview of the term "securities".
As per the Act, "property" would refer to capital assets only.

Clubbing of income
Subject to the provisions of section 64(1A) of the Act, taxable income accruing or
arising in the case of a minor child shall be included in the income of the parent
whose total income is greater or where the marriage of the parents does not
subsist, in the income of that parent who maintains the minor child. An exemption
under section 10(32) of the Act, is granted to the parent in whose hand the income
is included upto Rs. 1,500/- per minor child. When the child attains majority, the tax
liability will be on the child.

 Deduction under section 80C

As per section 80C, and subject to the provisions, an individual / HUF is entitled to a
deduction from Gross Total Income upto Rs. 1.00 lac (along with other prescribed
investments) for amounts invested in any units of a mutual fund referred to in
section 10(23D) of the Act, under any plan formulated in accordance with such
scheme as the Central Government may notify.

Securities Transaction Tax

All Unit holders
As per Chapter VII of the Finance (No. 2) Act, 2004 pertaining to STT, the STT shall
be payable by the seller at the rate 0.25 per cent on the sale of a unit of an equityoriented fund to the mutual fund.
OTHER BENEFITS
Investments in Units of the Mutual Fund will rank as an eligible form of investment
under Section 11(5) of the Act read with Rule 17C of the Income-tax Rules, 1962, for
Religious and Charitable Trusts.
TAX TREATY BENEFITS
A non- resident investor has an option to be governed by the provisions of the Act or
the provisions of a Tax Treaty that India has entered into with another country of
which the non- resident investor is a tax resident, whichever is more beneficial to
the non- resident investor. The provisions of Section 195 and/or Section 197 of the
Act would need to be complied and also documents will have to be furnished by the
non- resident investor in this regard.
ii. Wealth-tax
Units of the Mutual Fund are not treated as assets as defined under Section 2(ea) of
the Wealth-tax Act, 1957 and therefore would not be liable to wealth-tax.
iii. Gift-tax
The Gift-tax Act, 1958 has ceased to apply to gifts made on or after October 1,
1998. Gifts of Units of the Mutual Fund would therefore, be exempt from gift-tax.
The above Statement of Possible Direct Tax Benefits / Consequences sets
out the provisions of law in a summary manner only and is not a complete

analysis or listing of all potential tax consequences of the purchase,

ownership and disposal of mutual fund units. The statements made above
are based on the tax laws in force (including the amendments made by the
Finance Act, 2011), Chapter VII of the Finance (No. 2) Act, 2004 pertaining
to Securities Transaction Tax, and as interpreted by the relevant taxation
authorities as of date. The proposals of the Draft Direct Taxes Code Bill,
2010 have not been considered therein. Investors/Unit Holders are advised
to consult their tax advisors with respect to the tax consequences of the
purchase, ownership and disposal of mutual fund units.