[SmartCat]

Originally Posted by MightyHorse1188

So to summarise, unfortunately at this point we have not been able to engineer a risk free arbitrage opportunity here.

Originally Posted by mjkaushal

I would be probably willing to take the risk and be even happy to get back the invested amount without anygains at the end of the stipulated time.

Actually, there is one complex method to achieve this. Worst case scenario is that you will get your capital back, and the best case scenario is blue skies. These are usually marketed by banks/wealth management firms as 'Structured Products'.

- Let's assume the money in hand is Rs. 10 Lakhs
- Invest Rs. 9.75 Lakhs in a liquid fund that will generate about 3.5% in 6 months.
- With the remaining Rs. 25,000, buy NIFTY call options. The returns profile a call option will be like this:



- If NIFTY moves up beyond a certain level, the call option will generate profits. If it does not, you lose the entire Rs. 25,000.
- But Rs. 9.75 Lakhs invested in liquid funds would have reached Rs. 10 Lakhs level, because of interest accrued.

So:

Worst case scenario: 0% returns
Best case scenerio: Depends on how high NIFTY goes.

Note: All these stunts are not worth the time. Even if you are aware of derivatives, don't bother with this strategy

[Entsurgeon]

@SmartCat what you are suggesting is doing options trading but only at a rate where your investment returns can compensate for your losses. Good for those financially disciplined individuals who would want to place a bet twice or thrice in life. Doing this perpetually would erode your 9.75L/10L to inflation.
Plus a disciplined investor gambling his luck is an oxymoron of sorts.

[SmartCat]

Originally Posted by Entsurgeon

Good for those financially disciplined individuals who would want to place a bet twice or thrice in life. Doing this perpetually would erode your 9.75L/10L to inflation. Plus a disciplined investor gambling his luck is an oxymoron of sorts.

Of course, the above is just academic.

In India, this strategy is sold as a 'wealth management' product by financial institutions. In US/Europe, there are a few hedge funds that adopt the strategy too. But they add even more complexity into the strategy - by making a prediction (probability) on direction of the market using technical analysis

[mjkaushal]

Originally Posted by MightyHorse1188

You say you need that money in next 5 months itself, even if we assume the same trend continues for next 5 months (highly unlikely in my opinion for any mutual fund to perform that way given the current market sentiment) you will make about 25% of the corpus as return on your corpus.

Thank you very much for the much detailed explanation. Infact i read it through a couple of times to make sure that I assimilate the entire meaning thoroughly. What you said makes very much sense.

I would defintely look into the arbitrage funds and maybe try it out. I should be able to stomach any offsets to the tune of say 10-15% atmost, since my equities have fared pretty well for last couple of months.

Thank you very much for your wishes !!

Originally Posted by SmartCat

In India, this strategy is sold as a 'wealth management' product by financial institutions. In US/Europe, there are a few hedge funds that adopt the strategy too. But they add even more complexity into the strategy - by making a prediction (probability) on direction of the market using technical analysis

Very True.

A lot of people in the financial institutions try to sell these products which are into hedging, which I probably presume as "gambling". Maybe I would need to know more about the same before venturing into them if at all they stand true to what they claim !!

[adimicra]

Originally Posted by SmartCat

Depends on the quantum of capital gains made from sale of debt funds. Since you have no other income, capital gains is the annual taxable income. However, if you are receiving dividends from shares and savings/deposit interest, it needs to be added to your 'annual taxable income'.

Assuming you have none, and your capital gains from sale of debt funds is Rs. 7 lakhs in a year (for example), you have to pay 10% of that amount as tax.

Attachment 2644671

So when pulling out money from debt funds, it makes sense to exit funds with least capital gains.

Thanks for the response...
What it means is - we should continue to hold the debt funds as long as possible, preferably till retirement.
Because, currently if I withdraw, I need to pay 39% tax as per my income tax slab.
But, after I retire, since I don't have salary income, the only income is the capital gains from funds.. So, if we withdraw only the amount needed for our expenses, it will be way less than the salary income. So, we can probably get away with just 15-20% overall tax rate based on one's expenses. Which is a huge huge benefit.
Also, as you said, when we need the money for our expenses, best to sell the ones with least capital gains.

[SmartCat]

Originally Posted by adimicra

So, we can probably get away with just 15-20% overall tax rate based on one's expenses. Which is a huge huge benefit.

You will probably not be paying much tax, unless you are withdrawing huge amounts every year. Just to reiterate, if you intend to pull out Rs. 12 Lakhs or Rs. 18 Lakhs per year after retirement, your taxable income is NOT Rs. 12 Lakhs or 18 lakhs.

Only the capital gains (based on First In First Out method) made on the original investment is your taxable income. And since we now have a very liberal tax slab, your taxable income is likely to be in 0% slab.

Manage your MF portfolio on www.valueresearchonline.com and it will automatically calculate your capital gains.

[Entsurgeon]

I have a very noob query. One I couldn't find straight answer to.
Is it mandatory to invest as an individual? Can i make a proprietorship firm/llp etc and invest via that ?

[saket77]

Originally Posted by Entsurgeon

I have a very noob query. One I couldn't find straight answer to.
Is it mandatory to invest as an individual? Can i make a proprietorship firm/llp etc and invest via that ?

Yes, any such entity can also invest. Paperwork requirements will be more- like partner's list, authorised signatory list, LLP/ partnership agreements, board resolutions in case of co., bank proof on the entity, more requirements in FATCA and UBO, etc. HUFs can also invest.

Regards.

[Fx14]

Originally Posted by SmartCat

You will probably not be paying much tax, unless you are withdrawing huge amounts every year.

And since we now have a very liberal tax slab, your taxable income is likely to be in 0% slab.

Only spoilsport was the recent budget's retrospective tax effect of debt fund investments done prior to 1st April 2023, which would attract 12.5% LTCG taking away the earlier benefit of indexation.

@ SmartCat, any idea how Liquid ETF's are taxed under the latest budget? The following link states that Liquid ETF are taxed the same way as Equity (unsure if that's correct) :

https://www.icicibank.com/blogs/mutu...vs-liquid-etfs

[SmartCat]

Originally Posted by Fx14

@ SmartCat, any idea how Liquid ETF's are taxed under the latest budget? The following link states that Liquid ETF are taxed the same way as Equity (unsure if that's correct)

I stopped investing in Liquid ETFs since rule change in 2020 because of confusion about how they are taxed. Before, it was quite simple. Liquid ETFs were tax free at the hands of investors, just like dividends were tax free. Taxes were paid by the fund house after deducting 20% DDT. So Liquid ETFs would reduce tax outgo for those in the highest tax bracket.

But now, after the rule change, no articles on Liquid ETFs taxation makes any sense. Eg:
https://support.zerodha.com/category...nd-liquid-bees

The first paragraph says gains are taxed according to the slab rate. But the last paragraph talks about STCG/LTCG. My CA too was confused and advised me not to invest in Liquid ETFs, till there is clarity on taxation.

[warrioraks]

Does anyone know how to invest in listed bonds? I tried searching on the app that I use for investing but only saw the option to buy and sell SGBs.

Came across some content which mentioned that LTCG on listed bonds and debentures is 12.5%. Now this seems weird at a time when debt MFs are being taxed at marginal (slab rate). Seems worth exploring if there are tax benefits.

[SmartCat]

Originally Posted by warrioraks

Does anyone know how to invest in listed bonds? I tried searching on the app that I use for investing but only saw the option to buy and sell SGBs.

https://goldenpi.com/

Zerodha/Rainmatter is an early investor in GoldenPi.

[vaibhav_a_a]

Originally Posted by warrioraks

Does anyone know how to invest in listed bonds? I tried searching on the app that I use for investing but only saw the option to buy and sell SGBs.

Came across some content which mentioned that LTCG on listed bonds and debentures is 12.5%. Now this seems weird at a time when debt MFs are being taxed at marginal (slab rate). Seems worth exploring if there are tax benefits.

Interesting question. I'll take a shot as I've been investing in NCDs for a while - 5+ years now (including back when I had to send a paper-based application)

- All Bonds (by this I mean govt bonds, typically), NCDs are identifiable by an ISIN number.
- You can get secondary market yields, price, vol etc information along with this ISIN on the stock exchange's sites. There is daily reporting.
- Unfortunately, different broker websites do not have the ISIN in their search algo. Some full-service brokers will give a unique code to the NCDs that are being traded in good volume. Some discount brokers (Groww, for example) do not offer listed bonds (including govt bonds) or NCDs.
- There is no universal guide for mapping of ISIN with the broker code for the bond / NCD. You can call your broker or RM and ask - there is usually a bond dealer at the backend who can help locate the code - but only for that broker platform.
- I have not used Zerodha but am told it's a natural language search for NCDs. If you try that you may please report back here would be very helpful to all.
- I'd not recommend parking funds in these basis tax treatment since capital gains in NCDs / Bonds is quite limited. They are good for fixed interest though (basically better than FD but limited liquidity)

[vaibhav_a_a]

Originally Posted by SmartCat

https://goldenpi.com/

Zerodha/Rainmatter is an early investor in GoldenPi.

This requires a bit more context. There are multiple such websites like these-

Indiabonds (run by AK Capital)
Bondskart (run by JM Financial)
TheFixedIncome (run by Tipsons)
GoldenPi - startup
BondsIndia - another startup
Smaller startups - Grip, Tap, etc.

All of these are not buy and sell platforms in the same sense as a broker (which is why I didn't cover them in my response - post #253). These are dealer websites powered in some cases by merchant bankers. So while you can buy bonds on these your available choices will be limited to the ones they have already got with them OR can arrange through their client database. Again, you can sell through them but only to their client base and it will be an arranged sale and you may end up with a bigger haircut than expected due to dealer commission.

It's not at all the same as buying something freely from the exchange via a broker where price discovery and realization are far better.

These sites are good, but they are limited in scope and cannot substitute direct buy/sell on the exchange (true secondary market). Regd the individual access to secondary market I've covered in my previous response, it's a sad state in India. The market is not broad enough or deep enough when it comes to retail participation.

[SmartCat]

Originally Posted by vaibhav_a_a

It's not at all the same as buying something freely from the exchange via a broker where price discovery and realization are far better.

Regd the individual access to secondary market I've covered in my previous response, it's a sad state in India. The market is not broad enough or deep enough when it comes to retail participation.

These 2 statements are contradictory though. Price discovery and realization cannot be far better in the secondary markets, if they do not have depth and liquidity (low bid/ask spread).

The websites you listed are considered as debt security brokers and need to be SEBI registered.
https://www.business-standard.com/fi...2800957_1.html
Full list: https://www.sebi.gov.in/online-bond-...providers.html

So other than limited number of debt securities, there is no other negative, since they match the buyers and sellers thereby solving the liquidity problem. And if you need choice, you can always sign up with multiple such platform. The debt securities are held in investor's demat account as usual.

Since it is regulated by SEBI, very likely these bond platform have systems in place to protect bond investors interest, especially if he wants an early exit. Even if an investor is skeptical and not happy with the offer price, the investor always has the choice of NOT exiting the bond and holding it till maturity.