Domain knowledge is a wonderful thing. Tracking the market is even better. The ability to leverage both for analysis separates the experts from the wannabes. While discussing market developments is a good pastime for investors, its important to get an overview from someone who grasps implications of past developments and how they influence future trends.
Debt market outlook
Neelesh Surana, Head, equities, Mirae Asset Global Investments, explains, "As stability returns to the currency markets, RBI is gradually shifting its focus away from tactical measures to more structural measures like raising financial savings rate, opening up financial sector, adjusting monetary policy framework. In 2014 we believe, that overall rates expectations would be derived from currency prospective and RBI may focus on real interest rate enjoinment in order to protect further currency depreciation. Emerging growth inflation dynamics and effect of upcoming elections on the fiscal situation may dictate the direction of interest rates."
Neelesh Surana, Head, equities, Mirae Asset Global Investments.
The longer term G-Sec may continue to be under pressure because of the high government borrowing and rising concerns on fiscal slippages. In this view we expect 10 years G-Sec to be range bound between 8.60-8.80 in medium term till elections in May 2014. The election event may not affect short term yields in big way as RBI has clarified that cap on the repo will continue, which will make the overnight rates dependent on overall liquidity conditions in the system with upward cap of 8.75%, Neelesh opines.
Debt mutual funds
Vidya Bala, Head, Mutual Fund Research at FundsIndia.com, says, "IT department allows you to bring the cost of certain assets or investments to the present value (based on inflation), while calculating your gains from its sale. As part of this, all debt mutual funds (gains from sale of equity funds held over one year are exempt from capital gains tax) held above one year enjoy indexation benefits.
Vidya Bala, Head of Mutual Fund Research, FundsIndia.com
Double indexation is nothing but investing in such a way that you invest closer to the end of a financial year and exit soon after the next financial year, to enjoy 2 years (or more) of indexation although you held it for a much shorter period. You bring the cost of your holding, very close to inflation-adjusted values; and in high inflation scenarios (as in the last 2-3 years), your indexed cost may be higher than the sale price. In such a case, you have no gain and therefore no taxes.
You will only have a long-term capital loss that can be adjusted against long-term capital gain.
As far as mutual funds are concerned, FMPs appear to be the most sought after product to avail double indexation. All debt mutual funds (and that includes gold funds and international funds) have capital gains indexation benefit if held for more than 1 year.
That means, whether you invest in liquid funds, ultra short-term or short-term funds and income or gilt funds, as long as your investments are made closer to the year end, and exits are closer to a financial year beginning, you enjoy higher indexation. Choose the right debt fund that suits your requirement and is a sound performer and gain the most, Vidya advises.