MF Costs

Please provide information on all the extra costs that one incurs in sale/purchase of MF units. Also, how much more will I need to pay if I engage a distributor?

MLF’s Reply:  Here are the details of fees and taxes chargeable.

At the Time of Purchase

Entry Load: Nil. There is no entry-load at the time of purchase.

Transaction Costs: If you purchase mutual fund units through your distributor and if your distributor has opted in to charge transaction charge then for existing investors, Rs100 will be charged as ‘transaction fee’ per subscription for investments over Rs10,000; for new investors, the charge would be Rs150 for every subscription.

If your distributor has opted to accept transaction charges or if you invest directly with the fund house the above-mentioned charges will not apply.

For further details on transaction charges, click here

Ongoing Fees and Expenses

Expense Ratio: This is defined in your offer document and is deducted on a daily basis from the net asset value (NAV) of the scheme as a percentage of the total assets. There is an upper limit defined by SEBI.

Additional details of this fee are available under the section— ‘Annual Scheme Recurring Expenses’ of scheme offer document.

Tax on Dividend Payout (payable by the scheme)

Equity Schemes: There is no dividend distribution tax (DDT) deducted by the fund house for dividends paid out of equity schemes.

Non-equity Schemes: Debt, hybrid (having equity allocation less than 65%) and liquid schemes attract a divided distribution tax of about 28.325% (including surcharge and cess). Therefore, it would be better to opt for growth schemes.

At the Time of Redemption/Sale

Exit Load: If you wish to withdraw before a stipulated period, the scheme may charge a penalty.

The fund house pays the distributor commissions. You don’t pay anything extra. But, to reduce your cost, you should ideally opt for the direct plan of the scheme. Your returns will be higher as no commissions are paid out.

Have a Mutual Fund Query? Try  Moneylife Foundation’s Mutual Fund Helpline. Submit your query here: moneylife.in/mfhelpline.html

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Impact of FATCA on NRIs living in the US

The recently enacted FATCA makes it mandatory for Indian tax authorities to share information about earnings of NRIs in US. However both India and US have a treaty signed to avoid double taxation. NRIs living in US can certainly benefit from this treaty

The US government has recently enacted Foreign Account Tax Compliance Act (FATCA), which is primarily intended to detect and thus discourage tax evasion by persons living and earning in United States. However, it is expected to have an impact that extends far beyond tax obligations as it requires an attitudinal change in so far as tax compliance is concerned. And for people of Indian origin living in the US it calls for proper accounting of their earnings on their investments in India, if not done so far, to ensure that they comply with the tax regulations in their host country.

How does India come into the picture?

As per the communication issued to all commercial banks on 27 June, 2014, the Reserve Bank of India (RBI) has advised that governments of India and US have reached an agreement in substance on the terms of an Inter-Government Agreement (IGA) to implement FATCA and that India is now treated as having an IGA in effect from 11 April 2014. The IGA, however, would be signed only after the approval of cabinet. RBI has, therefore, inter-alia advised banks and financial institutions to register with US authorities and obtain a Global Intermediary Identification Number (GIIN) by 31 December 2014 to enable them to comply with the requirements under FATCA.
 
Similar instructions have been issued by market regulator Securities and Exchange Board of India (SEBI) also on 30 June, 2014 to the capital market intermediaries, including stock exchanges, stock brokers, mutual funds, depositories, depository participants and portfolio managers.  In effect, it applies to all financial intermediaries who handle investments in India by non-resident Indians (NRIs) living in the US.
 
As per the Model 1 of IGA agreed to be signed by the Indian government, Indian financial entities, which in FATCA terminology are called as ‘Foreign Financial Institutions’ (FFI) will be required to report information on US account holders to India’s Central Board of Direct Taxes (CBDT), which would then collate and share the information with the Internal Revenue Service (IRS) of US. The US has so far signed IGAs with over two dozen countries including the UK and Switzerland.
 
Under the agreement, FATCA requires all foreign financial institutions (FFI) to report information about financial accounts held by US taxpayers and or foreign entities in which US taxpayers hold a substantial ownership interest. In short, FATCA will require FFIs to enter into an agreement with the US Internal Revenue Service (IRS) whereby they agree to:     
               
identify their US account holders;
report certain information of such account holders annually to the IRS; and
withhold tax on payments to recalcitrant US taxpayers and to non-participating FFIs and close accounts belonging to recalcitrant account holders.

If FFIs do not comply, they will suffer a 30% withholding tax on payments of US source income or capital into their institution, irrespective of whether payments are made to the institution itself or on behalf of its clients.

How to identify US persons under the FATCA?

An individual account holder is treated as having US indicia or indicators if the account includes any of the following:

US Citizenship
Lawful permanent resident (green card) status
A US birthplace.
A US residence address or a US correspondence address including a US PO box.
Standing instructions to transfer funds to an account maintained in the US or directions regularly received from a US address.
An ‘in care of’ address or a ‘hold mail address’ that is the sole address with respect to the client or
A power of attorney or signatory authority granted to a person with a US address.

Having one of these indicators does not mean that the account is owned by a US person, only that it must be given closer scrutiny for identifying their US account holders for reporting as required under the act.

How does this impact NRIs living and earning in US?

Like any other US citizen, non-resident Indians or NRIs too living in US and having investments and assets in India are required to declare details of their earnings in India and pay tax thereon to the US government according to the laws of that country. Even if the income is earned in India and is exempt from income tax in India as per the Indian tax laws, it may not be tax free in US and it may be subject to local taxes. Under the new enactment, the IRS of US will get these details directly from the Indian government, so much so, it is advisable for all tax payers to collate this information meticulously and submit it to the US tax authorities to pre-empt any inquiries from them. But it is best to consult your local tax advisor in this regard and be guided accordingly.  
                        
However, there is an agreement called “India US double taxation avoidance treaty” entered into between India and US in 1990 for the avoidance of double taxation for residents of both the countries and NRIs can certainly benefit from this treaty as well.

To learn more about how FATCA might impact you and the benefits available under the India US double taxation avoidance treaty, it is advisable to visit the website of IRS of US Government and also consult your tax advisor for more information.
                              
(The writer is a financial analyst and writes for Moneylife under the pen-name ‘Gurpur’)

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COMMENTS

Sunil Kololgi

10 months ago

Does FATCA apply to India rupee Accounts from before an Indian went to USA and became Green Card holder/USA Citizen ?

It should not as these earnings had nothing to do with USA, in the first place. But the fear and confusion may make some people over react & close/withdraw everything?!

simplified laws

1 year ago

oh great think to read this blog.really this one give me broad information about nri taxation thanks ti shared this blog.http://www.simplifiedlaws.com/">Guide to Taxation and Legal Concern

Nagesh Kini

2 years ago

This is extremely timely.
It is high time our 'desis' wake up and not blindly believe 'what is tax exempt in India, no tax is payable in the US'.

Deepak Parekh, Zainulbhai appointed as independent directors on Network18 board

RIL, after completing the takeover of Network18 group, had appointed HDFC chairman Parekh and McKinsey India director Zainulbhai as independent directors on Network18 board

In a statement, Reliance Industries Ltd (RIL), India's largest private sector conglomerate said its Independent Media Trust (IMT) completed acquisition of control of Network 18 Media and Investments Limited (NW18), including its subsidiary TV18 Broadcast Limited (TV18).

 

The company said, Deepak S Parekh, chairman of Housing Development Finance Corporation (HDFC) and Adil Zainulbhai, senior advisor of McKinsey India, have been inducted as independent directors on the board of NW18. Raghav Bahl, founder of the media group, will continue to be on the board of NW18 as a non-executive director, RIL said in a statement.

 

With the completion of this transaction, IMT and RIL have become promoters of NW18 and TV18. The open offers to the public shareholders for acquisition of equity shares of NW18, TV18 and Infomedia Press Ltd, as announced on 29 May 2014 by IMT are in process and the draft letter of offer has been filed with SEBI for its comments, the release said.

 

RIL closed Monday marginally down at Rs1,026, while Network18 (NW18) shares jumped 5% to Rs60 on the BSE. TV18 closed 3% down at Rs30.8 while the 30-share S&P BSE Sensex ended the day marginally higher at 26,100.

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