4/4/2016

TheEconomicTimes
Title:Gsecorgiltfunds:Howtoinvestingovernmentdebt
Author:PREETIKULKARNI
Location:
ArticleDate:04/04/2016
Withfallinginterestrates,longtermgiltsmaygenerategoodreturns.Here'showyoushouldinvestinthem.
OwingtoastrongpossibilityofaratecutbytheReserveBankofIndia(RBI),longdurationgiltsandgiltfundshavestarted
rallying.Mostlongdurationgiltfundshavegeneratedanabsolutereturnofmorethan3%inthepastonemonth.Expertsfeel
themomentumwillcontinueforsometime.Giventhatratesareexpectedtotrudgedownwardsinthecomingdays,returns
frombondfundsarelikelytogoup.So,investorsshouldconsidergiltfundsnow,saysFinancialPlannerPankajMathpal.
Bondyieldsandpricesareinverselyproportionalpricesgoupwhenyieldsfallandviceversa.Thegeneralexpectationisthat
theRBIwillcutratesby25basispointson5Aprilandfurthercutscouldhappeninthecomingmeetings.
Retailinvestors'interestingovernmentsecuritieshasremainedelusive,andgiltshavebeenthesolepreserveofinstitutional
investors.Thisisbecauseofahighinvestmentthresholdof`10,000andarelativelycomplexinvestmentprocess.However,the
governmentandtheRBIislookingtosortoutsomeoftheproblemsinthecomingmonthsbyfacilitatingmoreinvestments
throughstockexchangesandprovidingretailinvestorsaccesstotheNDSOMtradingplatformcurrentlyavailabletoonly
institutionalinvestors.Thegovernmentmaybetryingtogetretailinvestorsmoreactiveindebtmarketsbyhavingthemget
usedtothesafestofdebtsecuritiesgovernmentdebt,saysChhaviMoodgal,CEOofinvestmentmanagementfirmScient
Capital.
Giventhefallinginterestrateregimeandthethrustonmakingtheinvestmentprocesseasier,giltsarebeginningtolook
attractive.Thequestionis:shouldyouinvestingiltsdirectly,orviagiltfunds?
Directinvesting
YoucaninvestinGsecs(governmentsecurities)throughbanksorviadealerssuchasICICISecuritiesPDandIDBIGilts.You
needtoopenaCSGL(secondaryconstituent'ssubsidiarygeneralledger)accountwithyourbanktoholdallgovernment
securitiesinanelectronicform.IfyouhaveademataccountandabankaccountwithNetbankingfacility,youcanalsoinvestin
GsecsthroughIDBIBank'sSamriddhiGsecportal.ThesamecanalsobedoneviaIDBI'sATMs.
Directinvestmentwillfitthebillofinvestorslookingforfixed,regularpayoutsintheformofinterestpayments.GSecsare
safeasthereisaguaranteebythegovernment.Also,therearenointermediarycoststobeborneastheretailinvestorisbuying
directlyfromthegovernment,saysRajivJamkhedkar,CEOoffinancialplanningportalazadonline.com.Thecategoryaverage
ofgsecfundreturns(8.63%),fallsbelowthegovernmentbondsindexreturn(9.27%).
Giltfunds
Thosenotcomfortablewithinvestingingiltsdirectlycanoptforgiltfunds.Investingingiltfundsisthesameasinvestingin
anymutualfundscheme.Youcaneithervisitthefundhouse'ssitedirectlyorapproachafunddistributor.Intermsofeaseof
investing,giltfundsclearlyscoreoverthedirectmode.Evenifthegovernmentpromotesretailparticipation,investment
throughthemutualfundroutewillcontinuetobeafarmoreconvenientwayofinvestingingilts,saysFinancialPlanner
AbhinavGulechcha.
Taximplications
Currently,thelistedbondsandgiltfundsaretaxeddifferently.Themaindisadvantageofdirectgiltholdingisthattheinterestor
couponreceivedbeforethescheme'smaturitywillbetaxedaspertheinvestor'sslabrate.Ifyoumakecapitalgainsafter
holdingthesecurityforoneyear,youwillhavetopayacapitalgainstaxof10%.Indexationisnotallowedbecausegiltisan
interestbearingsecurity.
Tillrecently,therewasacapitalgainstaxbenefitifyouinvestedingovernmentdebtthroughgiltfunds.Butnow,forshorter
horizons,itmakessensetousethedirectinvestmentroute,saysMoodgal.Thetaxadvantageofnonequityfundshasceased
afterthegovernmentincreasedtheholdingperiodforclaiminglongtermcapitalgainstaxbenefitsfromonetothreeyears.
Now,youareliabletopayataxof20%,afterindexation,onlongtermcapitalgains.Shorttermcapitalgainsaretaxedat
marginalrates.So,holdingperiodbecomescritical.Ifyourinvestmenthorizonexceedsthreeyears,giltfundsholdthetaxedge.
Thisisbecausetheinterestreceivedbythefundwillalsobecountedascapitalgaininyourhand.
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