Should you extend your fund maturity date?

Asset management companies have been announcing fund rollovers, which is extending the time for the maturity of schemes, in droves. Be it a debt fund or an equity fund, extension of the time period of a particular scheme means that your money will get stuck for more time in case you opt for it. Experts say investors should look at a range of factors to decide if a roll-over fits your financial game-plan.

Ranging from fixed maturity plans to hybrid schemes and equity funds, fund houses are telling investors to stay invested in select closed-ended investment products. In most of the cases, AMCs have asked for an extension of 1-2 years.

While investors shouldn’t invest in an instrument just because of tax breaks, the fact is there are situations where you can gain. In cases of many fixed maturity plans, a rollover of 7-30 days can add that extra bit. A change in debt fund taxation has made capital gains for less than a three-year holding period liable for taxation at the slab rate. This means if you hold it over 3 years, you can escape tax.

Vidya Bala, head of mutual fund research, FundsIndia says, "FMPs less than three years do not get capital gains indexation benefit. It is possible that AMCs extend some of the older FMPs to ensure that this benefit accrues with time."

But investors must also understand that staying invested for longer periods of time may expose them to new events. Many fund houses have sent investors communiques whereby they have said that returns can be higher if they stay invested in a rolled-over debt scheme.

"On yields, unless one goes for lower-rated instruments, higher coupon rates are difficult to come by. Hence, if a higher yield is stated as a reason, investors will do well to understand the risk profile and where the fund intends to invest before taking a call," adds Bala.

A few closed-ended equity funds have also sought permission from investors to extend maturity dates. Investment advisors want you to focus on 2-3 things if you are considering staying in the equity fund over and above the previous maturity date.

Firstly, an existing investor must know how the fund has performed and vis-a-vis its benchmark. "How has this fund has done so far? If the fund performed poorly, then does it make much sense to deposit money with them again for 12-24 months? Ask yourself. If your investment hasn't given your great results, probably you could explore other funds of the same AMC or different AMC," Anil Rego, founder, Right Horizons told DNA Money.

Secondly, there must have been an investment goal linked to a particular investment. If that goal has been reached or is close to it, and you need the money, don’t be greedy.

"If a fund has given you the target money that you required, come out of it on the maturity date. Use the funds for the purpose. The fund house may tell you that it feels stock markets may go higher in the next one or two year period, but there is no guarantee that such an objective will be realised. Its stock market, after all, there can be ups and downs. But in a close ended fund, you are stuck for the defined period and you can’t even use cost averaging if markets fall," says Dhrubajyoti Basu, a financial advisor.