What issues NRIs must keep in mind while investing in a new fund option

Question: Several market analysts are recommending investors to participate in new fund offers. I have some funds in India and my parents are also interested in making a safe and reliable investment. Can you throw some light on this product?

Answer: A new fund offer (NFO) is a scheme launched by an asset management company. The fund house offers a NFO for a category where it is not present in order to widen its portfolio. To illustrate, if an asset management company does not have a large or mid-cap fund or a multi-cap fund, it would launch a NFO for them.

Since the NFO is for an open-ended product, the scheme would reopen for subscription after the NFO period ends. Units are allotted at the prevailing net asset value. Investors are advised to deal with only SEBI registered mutual funds. Generally, investors should build a long term portfolio which includes fixed income securities and equities based on their risk appetite and long term goals. Investors should not subscribe to a NFO merely because it is available at a par value of Rs10. On the other hand, open-ended mutual fund schemes are preferable because in an existing scheme which has a track record, an investor can evaluate the portfolio and past performance.

Question: The tax department in India seems to be more tax payer friendly as refunds of tax are now being received expeditiously. Will this change of attitude continue and will litigation with the tax department abate?

Answer: The Finance Minister is very keen to ensure that the income-tax department adopts a fair and friendly attitude towards tax payers. This has resulted in almost 5.9 million first time tax payers filing their return this year. Almost 72 per cent of individual tax payers have accepted the new tax regime under which Rs700,000 of taxable income is not liable to tax, taking into account the rebate under section 87-A.

The balance amount is taxed at lower rates than provided under the old tax regime which may still be adopted by a tax payer at his option if he claims certain deductions. The Minister has exhorted tax officers to encourage voluntary compliance by tax payers and to take punitive measures only as a last resort. It has also been decided that correspondence with tax payers should be in simple language and devoid of legal jargon. It may be noted that Courts in India are also taking a strict view where tax officers are filing appeals to Courts despite the legal issue being settled by an earlier order of the Court in another case. Recently, the Bombay High Court imposed a fine of Rs.25,000 on a tax officer who had disregarded the earlier judgement of the Court.

H. P. Ranina is a practising lawyer, specialising in corporate and tax laws of India.