section 138(2) of income tax act and reference to section 280

U/S 138 of the Income Tax Act, 1961 – Disclosure of information about taxpayers to media

U/S 138 of the Income-Tax Act, 1961 – Disclosure of information about taxpayers to media – Circular – Dated 1-1-2015 – Income Tax

OFFICE MEMORANDUM

DATED 1-1-2015

Instances have come to the notice of the Board where information pertaining to individual taxpayers has been published in the print media with specific reference to departmental sources. In some cases, even details contained in departmental documents seem to have been shared with the representatives of media.

Attention of all the officers and officials of the Department is drawn to the provisions of section 138 of the Income Tax Act, 1961 read with notifications issued under that section, which obligates that no public servant shall produce before any person or authority any such document or record or any information or computerised data or part thereof as comes into his or her possession during the discharge of official duties unless specifically authorised to do so in accordance with the notifications issued under section 138 from time to time.

I am also directed to draw attention to the provisions contained in section 280 of the Income Tax Act, 1961 which provide that if a public servant furnishes any information or produces any record in contravention of the provisions of section 138(2) of the Income Tax Act, 1961, he or she will be punishable with imprisonment which may extend up to six months and shall also be liable to fine.

Privacy of taxpayer must be respected as the information respecting an assessee is held in fiduciary capacity and maintaining its confidentiality is a statutory obligation of the Department.

The above legal position is brought to the notice of all officers and officials of the Department for strict compliance. Any breach of the aforesaid statutory obligation will be viewed seriously by the Board and necessary action will be initiated.

All supervisory authorities must sensitise their subordinates about the statutory position and ensure that the Board’s directions are complied with both in letter and spirit.

This is  issued with the approval of Chairperson, CBDT.

ETF -EXHANGE TRADED FUNDS

Definition of 'Etf'

Definition: ETFs or exchange traded funds are similar to index mutual funds. However, they trade just like stocks.

Description: ETFs were started in 2001 in India. They comprise a portfolio of equity, bonds and trade close to its net asset value. These funds mainly track an index, a commodity, or a pool of assets.

They have the following advantages over mutual funds and equity/debt funds:

1. Lower Costs: An investor who buys an ETF doesn't have to pay an advisory/management fee to the fund manager and taxes are relatively lower in ETFs.

2. Lower Holding Costs: As commodity ETFs are widely traded in, there isn't any physical delivery of commodity. The investor is just provided with an ETF certificate, similar to a stock certificate.

INTEREST UNDER SECTION 234D OF THE INCOME TAX ACT

What is Interest under section 234D?

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Do you see interest charged under section 234D where your income has been assessed by the IT Department? Here’s a quick look on what Section 234D is about.

• Section 234D charges interest on excess refund given to you.
• Section 234D is attracted when refund is granted under section 143(1) but no refund is due at the time of regular assessment – (situation 1)
• Or where refund is granted under section 143(1) but it exceeds amount refundable on regular assessment. (situation 2)

In simple words, department charges you interest, if excess refund was paid to you. This happens where either no refund was due or where a lower refund had to be paid.

Here is how the interest is calculated –

• Interest is charged @ 0.5%
• The interest is charged from date of grant of refund under section 143(1) to the date of regular assessment.
• The amount, on which interest is charged, in case of situation 1, will be the entire refund amount. In case of situation 2 will be the amount of excess refund.

RISK INDICATED BY COLOUR WHILE INVESTING IN MUTUAL FUND SCHEMES

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

When to Redeem /Exit out of Mutual Fund

Redemption should not be tied with Markets Performance

During the calendar year 2017, Indian stock markets are on a roll. On 1st August 2017 S&,P BSE Sensex closed at an all-time high mark, many investors are wondering about the future of the markets. Will they continue to achieve new highs or will we now see a drop? Markets index may continue with their flows, as a long term investor you should not worry about day to day market levels at all.

A very simple and clear advice is to remain invested till the time your financial goal is not achieved.

Always remember that the decision of redemption should be connected to your investment objectives and not to market levels.

Fund Managers best to manage your money in such scenario

As a mutual fund investor, it is best not to worry about the market levels. Analyzing market trends and investing money accordingly is the fund manager’s job. When markets are at their peak, the need to redeem shouldn’t cross your mind. Fund managers are supposed to understand market trends better, sell the overvalued stocks and then deploy money as and when markets offer investment opportunities.

Your fund manager may have booked profits on investment and is now waiting for the next suitable opportunity for further investment. Therefore it is probably better to hold for a while before taking the next step. Fund Managers spend most of their time in research, meeting with company promoters to understand their strategy and business plans which could have an impact on the performance of stocks or markets. In short, your fund managers are potentially in a much better position in understanding markets trends.

There is also a possibility of you not be able to reinvest your redeemed money and may lose out on opportunity which does not happen if you let the Fund Manager manage your money.

Investors who have profitable investments in hands due to recent highs in the markets and now thinking on redemption. We have a question for you! Will you able to be catch a good investment opportunity in the current market especially when interest rates on savings and fixed deposits are falling? Therefore our advice is continuing your investments with this profit till the time you have not achieved your financial goal.

Redeem only if you have achieved your investment goal! 

You may have two reasons for redemption. Either you are worried about the markets levels (markets are at all time high so may fall down and better book some profit) or you have met your financial goal, investment objective.

If you are looking to book profits then, as we have explained earlier it is better the fund manager do that job.

In second case, if you have achieved your financial goal then you can redeem now. You can spend your profitable investment to fulfill your financial goal like higher education, marriage etc thanks to outstanding markets performance. Now you can enjoy benefits of long term investments!

One of the best way to redeem your investment is by starting a Systematic Withdrawal Plan (SWP), by doing this you will minimize the risk of redeeming all your money on one day.

To conclude, if you have achieved your investment objective then you can set a new financial goal and start your next long term investment association with markets. If you have not achieved your financial goal then you should continue with your investments till the time you have not achieved investment objective.

Remain a long term investor to make the most of your investment!

WHY LONG TERM INVESTING IN EQUITY COUNTS

3 Reasons you should think Long-term when investing in Equities

When it comes to investing for your future, there are a lot of publicly traded stocks and investment vehicles to choose from. Although there is no specified formula or handbook that investors are expected to follow, there is one general rule: Invest for the long-term.

If you need funds for the short term, investing in stocks is not encouraged as the markets tend to be volatile and can swing in either direction based on a lot of factors. That is why, in India, gold and real estate are preferred investment options. However, if you're looking to harvest your returns 5 or more years into the future, an investment in equities or an equity fund (an equity fund is a mutual fund that invests principally in stocks) can be ideal.

Here are 3 reasons why long term planning is essential when investing in equities.

1. Harness the power of compounding

Your age and financial responsibility play an important part in your investment decisions. Since youngsters have fewer financial responsibilities such as retired parents, a spouse, children, or car or home loans to pay off, they are encouraged to start their investments early. A young individual also has a high risk-bearing capacity, being able to withstand the swings of the market. Moreover, buying stocks or investing in equity for the long term allows you to take advantage of compounding (i.e. the interest begins earning interest on itself!).

Compounding requires two factors for it to work: the reinvestment of earnings, and time. The more time you give your investments, the more you can accelerate the income potential of your original income.

For example, an investment of 10,000 at 10% will result in 11,000 in one year. If you decide to reinvest the gain of 1,000 and receive the same rate of return, your capital will grow to 12,100 by the end of the second year. By contrast, not reinvesting the gains would have resulted in capital of just 12,000. This difference seems small over short time periods, but if one were to sustain the same 10% annual rate of return over a decade, the difference would show 25,937 for the reinvested corpus, versus just 20,000 total for the portfolio with gains pulled out of the market.

Year	Starting Value	Multiplier	Interest Earned	End Value
1	10,000	10%	1,000	11,000
2	11,000	10%	1,100	12,100
3	12,100	10%	1,210	13,310
4	13,310	10%	1,331	14,641
5	14,641	10%	1,464	16,105
6	16,105	10%	1,610	17,715
7	17,715	10%	1,771	19,487
8	19,487	10%	1,948	21,435
9	21,435	10%	2,143	23,579
10	23,579	10%	2,357	25,937

The above table is for illustrative purposes only.

2. The data doesn't lie

Although there have been ups and down, history shows that if you align your portfolio for the long term, you're more likely to make money, especially if you focus on high-quality businesses.

After the 2008 crisis, many investors terminated their SIPs. This was a really bad choice because the whole point of an SIP is to keep investing, irrespective of market conditions. Investments made when the markets are down big tend to make the greatest profits - as Warren Buffett says, "Be greedy when others are fearful."

3. You can correct investment mistakes in the long term

Anyone can start a long-term investment; you don't have to be an investment guru to invest in well-run businesses for the long term. An important thing to remember is that you will make mistakes; even the best investors have been wrong. But a regular review of investments every six months can help to correct at least some of these mistakes. It is important to hold on to companies that have historically demonstrated strong growth and add to companies whose business models are still intact but have fallen on hard times.

CHECKS FOR COMPARING MUTUAL FUNDS

Top 5 Checks While Comparing Mutual Funds

It's a challenge to choose a mutual fund scheme! The number of mutual fund schemes available in the market would drive any investor insane to zero down on a mutual fund of his/her choice. There is an endless list of checks necessary to be done before arriving at the one mutual fund scheme that meets your requirements and has potential to give decent returns. Below are the various checks to keep in mind while comparing mutual funds:

1. Know your fund house: 
Choosing a fund house in which you have sufficient faith to invest your money in is important before zeroing in on a scheme of your choice. Investors look for fund houses which can take care of their investments and can manage their money well. Objectives set by fund houses help investors to meet their goals thus securing their future. If the objectives are not met, investors lose faith in the fund house. A budding investor should ask these important questions like, "What are the fund houses' investment objectives?", and "How many schemes does the fund house offer to its investors?", "Are the funds similar under different names?", "Does the fund make sense to me?" It is equally important to know how the fund manager manages the funds under him/her. One needs to ascertain how schemes have performed during various market cycles managed by the fund manager. A good fund manager is not only important for the fund house but also for an investor.

2. Fund philosophy: 
The next important check is to know the philosophy of the fund house. A set of guiding principles that inform and shape an individual's investment decision-making process is termed as the philosophy of the fund. The fund house's investment philosophy plays an important role in determining the performance of its funds in different market conditions. The selection of the funds, investment decisions are directly dependent on the fund philosophy.

3. Charges and fees:
An Asset Management Company (AMC) that spends on the upkeep of a mutual fund is measured as the expense ratio of a fund. The fees of the advisor, record-keeping, legal expenses, accounting, auditing fees etc. are what make up an expense ratio. Higher churning of portfolio leads to higher costs. It is an expense borne by the investor and is deducted from the investment. For example if you have invested Rs. 100 and the expense ratio of the fund is 1.25, then your investment is Rs. 98.75. Lower expense ratio means that higher amount is available for investment.

4. Transparency: 
In today's world it is very important to maintain a good relationship with the customers, and to maintain a good relationship, there has to be a high level of transparency. This holds true even for mutual funds, as all mutual funds disclose the stocks they buy etc., through factsheets SEBI's new rule, instituted October 1 2016, requires asset management companies to disclose all commissions paid to distributors in the Half-Yearly Consolidated Account Statements (CAS) they send to investors, all this in an effort to bring more transparency into the system.
It is only when SEBI brought the commission disclose rule that we have started paying trail commission to distributors in the Regular Plan effective April 1,2017 by letting you, our investor, know exactly where your money is going and that its serving your interests first.
So when it comes to long term wealth generation that puts the investor first, it may make sense to invest in a fund which focuses on transparency and controlling costs - rather than investing in a typical high-cost mutual fund that consciously uses big ads to attract your money!

5. Performance: 
The last factor is return on investments. All the above factors are major drivers behind the performance of the funds. There are many other factors which have direct and indirect impact on performance of the funds; however, we have discussed the major factors above.
Moreover it is important to understand that the performance of the funds can change over a period of time (positively as well as negatively), however, its philosophy, ethics, investment strategy are the main pillars. Don't just only compare the performance of the fund in isolation.
To conclude, sound knowledge and research is very important before choosing a mutual fund to park your hard earned money. Following all the above steps might help you take right decision. However you may consult your financial advisor before taking any investment related decision.

a) What is bottom up stock picking and top down stock picking. The differences?  

There are different ways to invest. However the most popular approaches to stock picking are Bottom up and Top down

Top down approach:
Here the fund manager takes a view on the overall economy and identifies certain segments within the economy that are likely to do well. He then allocates the portfolio to these segments. For eg: the fund manager may think that automobiles may do well in an economy that is recovering from its recent slowdown. In this case he will allocate more funds for automobiles.

Bottom up approach:
Here the fund manager does not focus on macro trends. He remains focused on individual companies and businesses. If the individual businesses or companies meet his criteria on valuation and management style, then he will go ahead and invest, without worrying about macro economic trends.

YOUR RIGHT AS A MUTUAL FUND INVESTOR

Your Rights as a Mutual Fund Investor

The International Organization of Securities Commissions (IOSCO) has proposed to celebrate World Investor Week (WIW) from October 2-8, 2017 to raise awareness about the significance of investor education and protection and highlight the various initiatives of securities market regulators. Countries in six continents, which are members of IOSCO, would be celebrating this week as World Investor Week (WIW). NSDL along with SEBI are spearheading this effort in India.

Every mutual fund investor is entitled to some powerful rights. Rights that are meant to protect your investments. On the occasion of World Investor Week, we would like to share with you some important rights, your rights, which will help you be an informed investor.

Quantum Mutual Fund believes in only one motto - doing what is best for the investor, so be it innovating to create investor friendly investment processes to being the first AMC to willingly share the Charter of Investor Rights on our website; we would like all our investors to know why it is important to know all the rights investors are empowered with. These rights are bifurcated into two parts - Your AMC related rights and your Fund related rights.

AMC Related Rights

These rights are entitled to you to seek information or express views or demand in matters that are related to Quantum AMC in general. It gives you the power to ensure that you are given fair treatment by our AMC, your right to privacy or even share your grievances. Below mentioned are all the rights you can avail -

1.    Right to Fair Treatment - We believe in being transparent and treat each one of you equally. May it be your SIP of Rs. 500/- or Rs. 5,00,000, we always give fair treatment to all our investors & not discriminate based on investment amount or gender, age, religion, caste etc.

2.    Right to Privacy – Your personal and financial data is safe with us. We have a Privacy Policy which you can read here.

3.    Right to Inspect Documents – The documents mentioned in the Charter of Investor Rights are available for inspection at the office of the Fund at Regent Chambers, 505, 5^th Floor, Nariman Point, Mumbai-400021.

4.    Right to Grievance Redressal – There is a formal Grievance Redressal policy in place. You are requested to click here to read the same.

5.    Right to Terminate Appointment of Asset Management Company – Yes, the termination of the appointment of the AMC can be done by its investors (unit holders). A minimum of 75% investors need to approve the termination.

Fund Related Rights

These rights are entitled to you to seek information or express views or demand in matters that are related to your investments or the funds of Quantum AMC. When it comes to your investments we would urge you, our investor, to be extra cautious and be aware of all the rights that you are empowered with. Below mentioned are all the rights you can avail-

1.    Right to Suitability

2.    Right to Understand Risks

3.    Right to Understand Scheme True To Its Label

4.    Right to Receive Fair and True Advertisement / Communication

5.    Right to Know Schemes’ Investments, Portfolio, Expenses and Accounts

6.    Right to Receive Details of Investments / Avail Services For Investments

7.    Right in the Beneficial Ownership

8.    Right to Vote

9.    Right to Know Voting In the Investee Companies

10.  Right to Receive Compensation for Inappropriate Valuation

11.  Right to Receive Redemption Proceeds and Dividend

12.  Right to Wind-Up the scheme

Knowing these rights will help you empower yourself and take good care of your investments. This is only to help you make most of your investments. Also we as an AMC hope that this transparency will bring more and more investors towards choosing mutual funds as their primary investment avenue.
You can read the detailed Charter of Investor Rights here.     

MUTUAL FUND BENCH MARK

What is a Mutual Fund Benchmark?

Back in the days, if you recall going home to break your exam results to your parents, it wasn’t an easy thing to do. After scoring 60% in one of the papers which was rather tough, you come up with a range of explanations making your parents understand how difficult the paper was. You then go on to claim that most of your classmates scored lower marks or that the class topper scored 68% which wasn’t too far from your own score. But, after giving all the valid reasons to convince them that the paper was a tough nut to crack, you are however reprimanded for not performing well. Surely, you would be disappointed that they are not trying to reason with you as to how tough the paper was.

Now take for instance a mutual fund’s performance for the past one year period. It came down 7.5% during that period. In this case would it be right to say that the fund performed badly? It would be fair to compare the fund’s performance to a standard as you compared your performance to that of your classmates. A standard is thus the fund’s benchmark that helps to facilitate the understanding of any performance.

What is a Benchmark?
It is but a common thing that an investor would notice in his/her inbox on a regular basis, the various marketing communication emails and mutual fund advertisements declared by fund houses that particular funds have earned XX% returns and that if invested in such funds, investors would earn such returns. It is important to understand the significance of using a benchmark for the purpose of effective comparison which sadly many investors fail to understand. Since 2012, for the sake of standardization, SEBI (Securities and Exchange Board of India) has made it mandatory for fund houses to declare a  similar return in INR and by way of CAGR in addition to the scheme benchmark performance.

A scheme's benchmark is an index that is decided by its fund house to serve as a standard for the scheme's returns. The BSE Sensex and Nifty are the most generally used benchmarks in India for mutual fund investments. Other benchmarks are Nifty 500, Nifty 100, CNX Midcap, CNX Smallcap, S&P BSE 200 etc. Investors are given an opportunity to compare the performance of their investments with that of the broader market. Take for instance you are investing in a diversified equity fund that is benchmarked against the BSE Sensex. Its returns are thus compared with that of BSE Sensex. Hence a large-cap fund’s performance needs to be compared against a large-cap benchmark and vice-versa. Once you know the performance, you can decide whether to enter or exit a mutual fund.

Mutual Fund Performance with respect to the Benchmark
This is always the case that a mutual fund gets hit with force whenever the market scales new heights or comes crashing down. Let’s take for instance a diversified equity fund -  Fund A is benchmarked against the Sensex. Its returns are hence compared with that of the Sensex. Now suppose the fund achieved 40% returns though the Sensex earned 50% returns, it would mean that Fund A underperformed its benchmark. While on the other hand, if the fund achieved 50% returns and the Sensex generated only 30%, it would mean that Fund A outperformed its benchmark. There are some situations where a fund generates similar returns as that of its benchmark. Such cases are said to be considered as fund underperformances as the main intent of actively managed equity mutual fund investing is to perform better than the benchmark.  

Outperformed or Underperformed

Mutual Fund Performance with respect to the Benchmark
If returns are greater than its benchmark returns	Fund has outperformed
If returns are lesser than its benchmark returns	Fund has underperformed

A benchmark is an important tool that helps to measure a fund’s performance. To avoid any misunderstandings, an appropriate benchmark needs to be selected. Keep in mind that a benchmark performance is not the only criterion to select a mutual fund to invest in. Therefore, consult your financial advisor, understand your own risk appetite and assess your needs before taking any investment decisions.