No more EDIFAR...File it thru corpfiling SEBI says

SEBI amended DIP Guidelines and Listing Agreement yesterday.The Major changes made are-:

1) The report of the monitoring agency to filed with the Issuer Company instead of SEBI in case of Public or Rights Issue beyond Rs.500 Crs;
2) Those repot has to be placed before the Audit Committee;
3) Material deviations, If any, mentioned in the Monitoring Report shall be disseminated by the Company to the Stock Exchange and to be given as advertisements in the Newspapers;
4) Clause 43 and 51 were amended and Clause 43A and 52 were added to the Equity Listing Agreement, so as to make all the filings made by the Listed company only through the portal Corporate Filing and Dissemination System (CFDS) at the URL http://www.corpfiling.co.in/. (Jointly promoted by BSE and NSE) as SEBI is planning Phase out EDIFAR.

Read more at http://www.sebi.gov.in/Index.jsp?contentDisp=WhatsNewScroll&FilePath=/press/2007/3232007.html.........

SEBI Circular in http://www.sebi.gov.in/circulars/2007/CIR-CFD4-2007.pdf

FDI - by citizen/ Entity Incorporated in Bangladesh

Dear All,

The RBI has amended FEM (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 notified vide FEMA Notification No. 167 dated October 23, 2007 to give effect changes relating to investment by citizen/ Entity Incorporated in Bangladesh.

As per existing provisions of Regulation 5 of FEM (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 a citizen of Bangladesh or Pakistan or an entity incorporated in Bangladesh or Pakistan, are not allowed to purchase shares or convertible debentures of an Indian company under Foreign Direct Investment Scheme.

As per above said RBI notification and subsequent AP DIR Circular No. 22 dated 19th Dec 2007, a person who is a citizen of Bangladesh or an entity incorporated in Bangladesh may, with the prior approval of the Foreign Investment Promotion Board of the Government of India, purchase shares and convertible debentures of an Indian company under Foreign Direct Investment Scheme, subject to the terms and conditions specified in Schedule 1 to Notification No. FEMA 20 / 2000 -RB dated May 3, 2000 as amended from time to time.

Thanks & Regards
Alagar
Karvy Investor Services Limited
Moble: 919884731993

Power of Attorney (PoA) - nice FAQ

As a Power of Attorney may relate to substantial
monetary dealings, clarity on the nature of the
document is vital

— Photo: H. Vibhu

Care and caution: A Power of Attorney becomes an
important document in property transaction.

A Power of Attorney, especially, when relating to real
estate transactions, is a very important document. As
it may relate to substantial monetary dealings,
clarity on the nature of the document is vital. Many
queries have also been raised with regard to the Power
of Attorney. Attempt is made to address these issues
in this FAQ.

1.What is a Power of Attorney?

A Power of Attorney is a document under which one
person known as "Principal" or "Donor" grants an
authority to another person, known as "Agent",
"Attorney" or "Donee" to do or undertake the acts,
deeds and things specified in the document, on behalf
of the Principal or Donor.

2.What are the various types of Powers of Attorney?

There are many types of Powers of Attorney. A broad
classification would be General Powers of Attorney and
Special Powers of Attorney. A General Power of
Attorney confers substantial powers for effecting the
transactions contemplated. A Special Power of
Attorney, on the other hand, is given for specific
purposes only and is often restrictive in scope.

3.What are the ingredients for grant of a valid Power
of Attorney?

The Principal and the Agent must be competent to
contract. It has to be given voluntarily. The Power of
Attorney should be given for legal purposes. It must
be duly stamped, notarised or registered or
adjudicated, as the case may be. Powers of Attorney
executed abroad may also be authenticated by a
Consulate Officer. Minors and other persons
disqualified by law cannot grant a Power of Attorney.
There are certain acts which can be done only by the
persons concerned. For these acts, Powers of Attorney
cannot be granted.

4.What are the acts which can be done only by persons
concerned, referred to above?

These are acts which a person concerned alone can
perform. For example, take the case of a singer or a
musician contracting to perform. The performance has
to be given by the singer or musician only and
obviously cannot be performed by a Power of Attorney.
This is an extreme example to give a broad idea as to
what the personal acts can be. There are any number of
such matters which are to be performed or executed by
person concerned only.

5.Is registration of Power of Attorney mandatory for
exercising the powers?

A Special Power of Attorney under which the Principal
authorizes the Agent to present for registration, a
document executed by the Principal has to be
compulsorily registered. In other cases, it is
sufficient if the power is notarised or authenticated
by an Indian Consul or Vice Consul or by a Court,
Judge or Magistrate. However, in respect of local
Powers of Attorney, it is advisable to have the same
registered as notarization or authentication may not
meet market acceptance.

6. Can a Company grant a Power of Attorney?

If so authorised by its Memorandum and Articles of
Association, a Company can grant a valid Power of
Attorney.

7.Can a Partnership Firm grant a Power of Attorney?

This can be given. Subject to the terms contained in
the Partnership Deed, it may be binding on all
partners, if given by one of the partners.

8.What are the important features of a Power of
Attorney?

One would have noticed that in matters relating to
commercial transactions, there is usually a payment or
passing of consideration. For a Power of Attorney to
be valid, no consideration is required. Further, many
documents would be irrevocable in nature. However, a
Power of Attorney can be normally revoked.

9.Is there a type of Power of Attorney called
"Irrevocable Power of Attorney"?

As already stated, normally a Power of Attorney can be
revoked. In matters where the Agent has acquired an
interest, the Power of Attorney is known as a power
coupled with interest and cannot be revoked without
the express consent of the Agent. This is an usual
parlance referred to as an "Irrevocable Power of
Attorney". In certain cases, the Power of Attorney may
amount to a conveyance and these Powers of Attorney
can also be brought within the ambit of Irrevocable
Powers of Attorney.

10.How are the wordings in a Power of Attorney
construed?

This depends on the clarity of the wordings employed.
The general construction is that the Agent is
empowered to do or undertake only acts which are
clearly authorised. However, certain incidental powers
can be inferred to give effect to the terms contained
in the Power of Attorney. If the Power of Attorney
confers power of sale, then it can be inferred that it
includes necessary powers for completing the sale
transaction. In the same case, though the Agent may
have the power to sell, the Agent, unless,
specifically authorised, will not be entitled to
mortgage the property.

12.What are the matters to be noted in respect of
Powers of Attorney executed abroad?

The Power of Attorney can be executed in a green sheet
or a white sheet and stamped or adjudicated, within
three months after receipt in India. It has to be
authenticated by an Indian Consul, Vice Consul or a
Notary.

In many cases, the Power of Attorney executed abroad
is sent with only last page signed by the Principal.
This practice is not desirable and every page has to
be signed by the Principal. This will save a lot of
time and avoid unnecessary delay and expense.

13.While dealing with an immovable property, is it
sufficient only to take a Power of Attorney
containing, among other powers, the power to sell?

Considering that the nature of the Power of Attorney
is such that it can be revoked, it is advisable to
back this Power of Attorney with a proper Agreement.
This will be give better rights in matters relating to
commercial dealings.

14.What the general precautions to be taken while
granting a power?

Please check the wordings. Understand the
implications. If the Power of Attorney contains power
to mortgage, one has to exclude personal liabilities
wherever the intention is not to undertake such
personal liabilities. Try and get periodical feedback
from the Agent. If you are revoking the power,
consider all the facts and circumstances and the
impact that this may cause before venturing into this.

15.What are the general precautions to be taken while
acting as an Agent?

Understand the scope of the power. Note that you are
actually acting on behalf of somebody else and protect
the interest of the Principals. Do not exceed the
powers granted under the document. Provide periodical
feedback to the Principal. Get necessary further
documentation to ensure that the Agent does not suffer
on account of unexpected revocation. In case of death
of Principal, act promptly to obtain suitable
documentation to cover the situation. If possible, get
periodical confirmations of the validity of the power.
Powers of Attorney, especially those covering
commercial transactions, are intended for short
durations and keeping the powers unused for a long
time may not be in the best interest of the Agent.

The author is Partner, RANK Associates, Advocates.

SEBI allows Short Selling

Sell it ! even if you don't own it.....this is what our SEBI says....

Now, the broad framework for "Short selling and securities lending and borrowing" has been prescribed by SEBI.

Extract is here,

1. Pursuant to the recommendations of the Secondary Market Advisory Committee (SMAC) of SEBI and the decision of the SEBI Board, it has been decided to permit all classes of investors to short sell subject to the broad framework specified in Annexure-1.
2. In order to provide a mechanism for borrowing of securities to enable settlement of securities sold short, it has also been decided to put in place a full-fledged securities lending and borrowing (SLB) scheme for all market participants in the Indian securities market under the over-all framework of “Securities Lending Scheme, 1997” of SEBI specified by SEBI vide circular No. SMD/POLICY/SL/CIR-09/97 dated May 07, 1997. Such a regulatory framework shall be subject to the broad framework specified in Annexure-2.
3. The Stock Exchanges shall issue the necessary guidelines in this regard and shall put in place systems to operationalise the above mechanisms for short selling and SLB. The stock exchanges shall also ensure that all appropriate trading and settlement practices as well as surveillance and risk containment measures, etc. are made applicable and implemented in this regard.
4. The Stock Exchanges and the Depositories are advised to put necessary systems in place so as to distinguish the lending and borrowing transactions executed in the framework specified in the annexure from the normal market transactions in the demat system.
5. The date of implementation of this circular will be communicated by SEBI subsequently.

6. The Stock Exchanges and the Depositories are also advised to :
6.1. test the necessary software/systems and remove any glitches in its operation well before the commencement date to avoid any problems in the live environment.

6.2. make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision.

6.3. bring the provisions of this circular to the notice of the member brokers/clearing members, depository participants and also disseminate the same on their website.

6.4. communicate to SEBI, the status of the implementation of the provisions of this circular in the Monthly Development Report.
7. This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 and Section 19 of the Depositories Act, 1996, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

See @ http://www.sebi.gov.in/Index.jsp?contentDisp=WhatsNewScroll&FilePath=/circulars/2007/shortselling.html

24% investment cap on SSIs removed - FDI

Dear All,

24% investment cap on SSIs removed - FDI

As per existing provisions, FDI is allowed upto 24% of capital in SSI units, if SSI units wants to take additional FDI over and above 24%, then it needs to sacrifice SSI status and can go to upto the sectoral cap as specified under FEMA Regulations for that particular business/industry.

As per recent announcement by Commerce Ministry, 24% of Investment cap is removed for SSI. So that now SSI can go upto sectoral cap as specified under FEMA regulation under automatic route without losing their status as SSI..

Extract from BS – 19-12-2007

In a development, which is likely to increase participation of foreign players and big companies in small-scale industries (SSIs), the government has formally announced doing away with the 24 per cent investment cap in the sector.

However, industry sources remained sceptical about the move as cheap imports from countries like China has made production of many goods exclusively reserved for the sector unviable.

To make this move effective, the government has taken a decision to repeal a restrictive clause, which limits equity participation in SSIs to 24 per cent.

Announcing the development, Commerce Minister Kamal Nath said: "This will lead to technology infusion in the sector as more and more foreign players and large companies set up their own SSI units."

The government notification will enable big industrial houses, both from the country and abroad, to set up SSI units in the sector, which has been restricted because of a limit of 24 per cent equity participation by other companies.

An industrial unit is classified as an SSI when the investments is within Rs 5 crore. At present, there are 114 goods that are exclusively reserved for the sector.

"The doing away of the investment limit means that the de-reservation process of SSIs, which started in 1967, is complete. Thus large corporate houses will be able to set up SSI units in both reserved and unreserved products," said Anil Bhardwaj, secretary general of Federation of Indian Micro and Small and Medium Enterprises.

But he also added that this move is inconsequential in terms of effective benefits for the SSI sector: "Cheap imports have made production of many reserved items unviable. Indian SSIs are not able to compete with international companies in the domestic market."

Reserved items in the sector include electric tea and coffee maker as well as pens, which are being imported in large quantities.

Thanks & Regards

Alagar
Karvy
Moble: 919884731993

Interesting Judgement..Whether CLB is a court under Contempt of Courts Act ?

Important Jugement by High court answering following queries..

Whether CLB is a court under Contempt of Courts Act ?
Whether CLB is subordinate court to High Court under Contempt of Courts Act?
Whether High Court can take suo-moto cognizance of contempt of CLB without any reference made to it?

Read more it ....http://www.taxmann.net/DispCitation/ShowPages.aspx?fn=http://www.taxmann.net/WhatnewNews/[2007]080SCL0405(AP).htm&ctid=-333

FEMA- FDI - Refund of Advance Remittances

Dear All,


Foreign Direct Investments (FDI) – Issue of shares under FDI and refund of advance remittances

The RBI vide AP DIR Circular No 20 dated 14^th December 2007 has made the following changes in the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 in connection of refund of consideration from a person resident outside India towards investment in equity shares / compulsorily convertible preference shares and compulsorily convertible debentures (equity instruments).

As per existing provisions of FEM (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 a person resident outside India can purchase equity shares / compulsorily convertible preference shares and compulsorily convertible debentures (equity instruments) issued by an Indian company under the FDI policy and the Indian company is allowed to receive the amount of consideration in advance towards issue of such equity instruments, subject to the terms and conditions laid down therein. The Indian company is required to report the receipt of the amount of consideration within thirty days of receipt of the inward remittance or the date of debit of the NRE / FCNR (B) account of the foreign investor with a AD category – I bank in India, to the Regional Office concerned of the Reserve Bank, in accordance with the prescribed procedure. The money received from foreign Investor can be kept as share application pending for allotment and allotment of shares can be done at any point of time before 7 years of receipt so as avoid transfer such money to IEPF.

The matter has been reviewed in consultation with the Government of India and it has been decided that, with effect from November 29, 2007, the equity instruments should be issued within 180 days of the receipt of the inward remittance. In case, the equity instruments are not issued within 180 days from the date of receipt of the inward remittance or date of debit to the NRE/FCNR (B) account, the amount of consideration so received should be refunded immediately to the non-resident investor by outward remittance through normal banking channels or by credit to the NRE/FCNR (B) account, as the case may be. The AD Category – I banks may allow such outward remittances after satisfying themselves with the bonafides of the transactions and that no part of the remittance represents interest on the funds received as advance. Non-compliance with the above provision would be reckoned as a contravention under FEMA and could attract penal provisions.

In exceptional cases, refund of the amount of consideration outstanding beyond a period of 180 days from the date of receipt may be considered by the Reserve Bank on the merits of the case. Accordingly, AD Category – I banks may apply to the Regional Office concerned of Foreign Exchange Department of the Reserve Bank for refund of such advance.

In all cases where, as on November 28, 2007, 180 days have elapsed since receipt of funds and the equity instruments have not been issued, the companies are required to approach the Foreign Exchange Department of the Regional Office concerned of the Reserve Bank through their AD Category - I bank with a definite action plan either for allotment of equity instruments or for refund of the advance, with full details, for specific approval.

It is clarified that the advances against equity instruments may be received only where the FDI is allowed under the automatic route.

For more info http://rbidocs.rbi.org.in/rdocs/Notification/PDFs/82142.pdf

Thanks & Regards

Alagar
Karvy Investor Services Limited
Moble: 919884731993
for more information about cschennai visit to
http://groups.google.com/group/cschennai

CRLP last minute Guide, full procedure on Mergers & Amalgamations

The heat is on for Company Secretary Exams.

Yes, Thanks to CAClubindia for this, very exhaustive procedure of Mergers, Amalgamation, Demerger, etc....as Companies Act, 1956 doesn't differentiate all these terms, the procedures for all are same.

Find in http://thisisvj.googlepages.com/TooExhaustiveMergersAmalgamationsPro.doc

This may help you to write CRLP exams.

Nice Presentation of Amalgamation Procedure by Mr. Sunil. This is the standard answer that you can write for most of the Corporate Restructuring including Mergers, Demergers, Amalgamations, Slump Sale, etc... as the Companies Act considers all as same. http://thisisvj.googlepages.com/AMALGAMATIONProcedure.pdf

Supreme Court on Takeover Valuation may be one of the most expected CS Final Question this time, Credits to the Author http://thisisvj.googlepages.com/SCTakeoverValuation.pdf

Enjoy Passin.... Keep Communicatin the joyous Results.

Enjoy with CS.

SEBI - CM & WTM - ICSI also asked to recommend

It seems to be raining in great news folks...

Institute of Company Secretaries of India (ICSI) has been asked by Ministry of Finance (Dept. of Eco. Affairs,Capital market Division ),to recommend name of its members who will be considered for the post of Chairman and Whole time members of SEBI..

Read more at....
http://www.thehindubusinessline.com/2007/12/08/stories/2007120852991000.htm

IDRA-Monthly Production Returns to DIPP

Credits to Dr. KS Ravichandran, PCS, Coimbatore

The industrial units covered under the Industries (Development & Regulation) Act, 1951, are hereby informed that the Centre for Monitoring Indian Economy (CMIE) had been collecting monthly production data on behalf of the Department of Industrial Policy and Promotion (DIPP) as per the agreement signed between DIPP and CMIE. The term of this agreement has come to an end in November, 2007. Therefore, the concerned industrial units are requested to henceforth, send the Monthly Production Return directly to the Director, Industrial Statistics Unit, DIPP, Udyog Bhawan, New Delhi-110 107 by the 10^th of every month by post /Fax (No.011-23063564)/e-mail (ipp_dir-stat@nic.in). The performa of the Monthly Production Return (MPR) can be downloaded from the hyperlink “Forms” available in the main page of the website: www.dipp.nic.in.

Also refer http://dipp.nic.in/isu/NoticeMonthlyProduction_Report.doc

FEMA - Transfer of Shares (A Compendium)

Note on Provisions of Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) Regulations, 2000 regarding transfer of shares of an Indian Company

Ready hand Referencer & Compendium in http://thisisvj.googlepages.com/TransferofSharesFEMA.doc

1. Automatic route means there is no approval required for transfer of shares of an Indian Company.
2. Automatic route with FC-TRS means where the transfer of shares from resident to non resident and vice versa, before effecting the such transfer in the Company books, the transferee / transferor shall file form FC –TRS with concerned AD and get approval from them.

Thanks & Regards

Alagar

Karvy Investor Services Limited
09884731993

Great news Buddies..CS Pay Skyrockets...

We present the News-makers here... Influencing the history of ICSI. Yes, Company Secretaries can compete with the best pays too. Yes, the Base Price for Fresh Company Secretaries has been set now.

Scanned Copy http://thisisvj.googlepages.com/CSScan.pdf

Its a great news & it can be the greatest if you view it here...

As per the article published in "Business Standard" the company secretaries pay package has been raised upto 60% comparing to last year.

"So student members complete the course as soon as possible and continue your pursuits further to achieve professional excellence ( the motto of our institute)..."

Regards

R Anand

Manager

Corporation Finance Department

Division of Issues and Listing

Securities and Exchange Board of India

(: +91-22 26449343

7: +91-22 26449016

Email: anandr@sebi.gov.in;anandracs@yahoo.co.in;

Mobile: +91 -99206 55285.

Read more at .....http://www.business-standard.com/common/storypage.php?autono=306801&leftnm=6&subLeft=0&chkFlg

The Government Securities Act, 2006 will come into force W.e.f. 01-12-07

The Government of India has notified December 1, 2007 as the appointed date on which the Government Securities Act, 2006 will come into force. Government Securities Regulations, 2007 will also come into effect from the same date, i.e., December 1, 2007.

It may be recalled that with a view to consolidating and amending the law relating to Government securities and its management by the Reserve Bank of India, the Parliament had enacted the Government Securities Act, 2006 (the Act). The Act received the assent of President of India on August 30, 2006 and was published in the Gazette of India, Extraordinary, Part II – Section I on August 31, 2006 for general information.

The Act applies to Government securities created and issued, whether before or after the commencement of the Act, by the Central or a State Government. Accordingly, the Public Debt Act, 1944 will cease to apply to the Government securities. The Indian Securities Act, 1920 has been repealed.

The new Act and Regulations would facilitate widening and deepening of the Government securities market and its more effective regulation by the Reserve Bank in various ways, such as:

(i) Stripping or reconstitution of Government securities;

(ii) Legal recognition of beneficial ownership of the investors in Government securities through the Constituents' Subsidiary General Ledger (CSGL);

(iii) Statutory backing for the Reserve Bank's power to debar Subsidiary General Ledger (SGL) account holders from trading, either temporarily or permanently, for misuse of SGL account facility;

(iv) Facility of pledge or hypothecation or lien of Government securities for availing of loan;

(v) Extension of nomination facility to hold the securities or receive the amount thereof in the event of death of the holder;

(vi) Recognition of title to Government security of the deceased holder on the basis of documents other than succession certificate such as will executed by the deceased holder, registered deed of family settlement, gift deed, deed of partition, etc., as prescribed by the Reserve Bank of India.

(vii) Recognition of mother as the guardian of the minor for the purpose of holding Government Securities; and

(viii) Statutory powers to the Reserve Bank to call for information, cause inspection and issue directions in relation to Government securities

For relevant Act please go to http://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=17582

Thanks & Regards
Alagar
Karvy Investor Services Limited
Chennai - 09884731993

SEBI amends DIP Guidelines : Rating requirements for Corporate Bonds simplified

In order to reduce the cost of of issuance of debt securities and for developing the debt market by affording the issuer with the desired flexibility of structuring of Debt Issues, SEBI has amended provisions of DIP guidelines relating to Debt instruments. Now,rating of only one CRA is required and bonds below investment grade can also be issued..

read more at ...http://www.sebi.gov.in/Index.jsp?contentDisp=WhatsNewScroll&FilePath=/press/2007/2007312.html

Amendments in SEBI DIP Guidelines

Dear All,

The SEBI has made certain amendments in SEBI (Disclosure and Investor Protection) Guidelines, 2000 vide Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated 29 ^th November 2007 (Today). The gist of amendments is;

1. Introduction of Fast Track Issues (FTIs).

As per existing SEBI (DIP) Guidelines, if existing listed Company wants raise funds from the public either through rights issue or follow on public issue, it needs to comply with procedural formalities as in the case of Initial Public Offering (IPO). The SEBI has come out with Press Release relating FTIs, as it is felt that there is a need to enable well established and compliant listed companies to access Indian primary market in a time effective manner through follow-on public offerings and rights issues. Accordingly, it has been decided to enable listed companies satisfying certain specified requirements to make Fast Track Issues (FTIs).

The amendments made vide this circular to enable well established listed Companies to proceed with follow-on public offering / rights issue by filing a copy of the Red Herring Prospectus (in case of book built issue) / Prospectus (in case of fixed price issue) registered with the Registrar of Companies or the letter of offer filed with Designated Stock Exchange, as the case may be, with SEBI and stock exchanges. Such companies are not required to file draft offer document with SEBI and stock exchanges.

2. Amendments regarding Issue of Indian Depository receipts (IDRs).

As per existing provisions only QIP can apply in an IPO of IDRs. Now, vide this amendment it has been decided to allow all categories of investors to apply in IDR issues, subject to the condition that;

• at least 50% of the issue being subscribed by QIBs, and
• the balance being made available for subscription to other categories of investors at the discretion of the issuer, which shall be disclosed in the prospectus. Further, it has been decided to reduce the minimum application value in IDR from Rs. 2,00,000/- to Rs. 20,000/- and to carry out certain consequential amendments to SEBI (DIP) Guidelines pursuant to amendments to IDR rules by the Ministry of Corporate Affairs.

3. Quoting of PAN mandatory:

Presently, as per SEBI (DIP) Guidelines, all applicants in public and rights issues are required to disclose their PAN/GIR in the application form if they are making an application for a value exceeding Rs. 50,000/-. It has been decided to extend the requirement of quoting PAN in application forms to all applicants, irrespective of the application value.

4. Discount in issue price for retail investors / retail shareholders:

Presently, SEBI (DIP) Guidelines do not provide for issuance of shares at differential price to investors within the net public offer category. SEBI has been receiving requests to permit issuance of shares to retail individual investors / retail individual shareholders at a price lower than that being offered to other categories. It has now been decided to introduce a provision in SEBI (DIP) Guidelines, permitting companies making public issues to issue securities to retail individual investors / retail individual shareholders at a discounted price, provided that such discount does not exceed 10% of the price at which securities are issued to other categories of public.

5. Definition of "Retail individual shareholder" for listed companies:

Presently, listed companies making public issues can make reservation on competitive basis for its existing shareholders who, as on the record date, are holding shares worth up to Rs. 50,000/-. However, no limit has been set on the value of the application that can be made by such shareholders. It has now been decided to define the term "Retail Individual Shareholder" to mean a shareholder whose shareholding is of value not exceeding Rs. 1,00,000/- as on the day immediately preceding the record date, and who makes application or bids in a public issue for value not exceeding Rs 1,00,000/-.

6. Clarification on the term CEO / CFO:

SEBI (DIP) Guidelines requires all directors, CEO and CFO of the issuer company to certify that disclosures made in the offer document are true and correct. It is now clarified that the terms "CEO" and "CFO" in SEBI (DIP) Guidelines shall have the same meaning as assigned to them in clause 49 of the Equity Listing Agreement.

7. Deletion of the chapter on "Guidelines for Issue of Capital by Designated Financial Institutions (DFIs)":

SEBI had introduced separate guidelines in 1992 for primary issuances by DFIs, to place companies / corporations / institutions engaged mainly in financing of developmental activities and playing a catalytic role in the infrastructure development of the country on a different footing. compete on equal footing with private entities and it is felt that DFIs, as a concept, may have outlived its utility. It has therefore been decided to remove the special dispensations given to DFIs by deleting the chapter on "Guidelines for Issue of Capital by DFIs" from SEBI (DIP) Guidelines.

8. Monitoring of issue proceeds:

Presently, as per SEBI (DIP) Guidelines, every issuer making an issue of more than Rs. 500 crores is required to appoint a monitoring agency, which is required to file a monitoring report with SEBI for record purpose. It has been decided that this provision shall not apply to (i) issues by banks and public financial institutions and (ii) offers for sale. Further, it has been decided that the

monitoring agency shall henceforth be required to file the monitoring report with the issuer company and not with SEBI, so as to enable the company to place the report before its Audit committee.

9. Amendments to Guidelines for Preferential Issues:

It has been decided that listed companies intending to make preferential allotment shall be required to obtain PAN of each of the applicants of the preferential issue before making the preferential allotment.

10. Miscellaneous amendments:

· SEBI issues standard observations as a supplement to issue-specific observations on each and every draft offer document filed with SEBI. These standard observations are being rationalised / reviewed. Accordingly, it has been decided to amend SEBI (DIP) Guidelines to incorporate certain clauses from the standard observations, essentially those pertaining to confirmations, undertakings, documents, information, etc., to be submitted by the Lead Manager/s to the Issue while filing an offer document with SEBI. Lead Managers shall also be required to file as an annexure to the due diligence certificate, a detailed check list indicating compliance of each of the clauses of the relevant chapters of SEBI (DIP) Guidelines.

· SEBI (DIP) Guidelines contain certain provisions, which have become redundant or need to be aligned with other provisions of SEBI (DIP) Guidelines / the Companies Act, 1956 or in respect of which, there have been requests for exemption on regular basis. Consequently, it has been decided to fine-tune the guidelines by modifying such clauses.

Thanks & Regards
Alagar
Karvy Investor Services Limited

Corporate Governance Award (ICSI)

Yes,

The Corporate Governance Award 2007 by the Institute of Company Secretaries of India (ICSI) to Tata Consultancy Services (TCS), Kansai Nerolac Paints & Shri N Voghul of ICICI Bank.

Get the details in http://thisisvj.googlepages.com/CGAwardees2007AD.jpg

Thank you

ICSI - QUESTION PAPERS

Kindly follow this link to get all the Question Papers of ICSI Final & Inter exams,

http://www.icsi.edu/WebModules/icsiweb/questionpapers.htm

Thank you,

Enjoy Passing....Company Secretary exams ! All the Best !

Schedule VI Amendment

NOTIFICATION NO. G.S.R. 719(E), DATED 16-11-2007

In exercise of the powers conferred by sub-section (1) of section 641 of the Companies Act, 1956 (1 of 1956), the Central Government hereby makes the following further alterations in Schedule VI to the said Act, namely:—

1. In the said Schedule, in “Part I Form of Balance-Sheet, under heading-A. Horizontal Form”,—

(1) in the first column relating to “Instructions in accordance with which liabilities should be made out”, for the second paragraph appearing against the sub-heading “CURRENT LIABILITIES AND PROVISIONS”, occurring in the second column, the following paragraph shall be substituted, namely:—
“The following shall be disclosed under notes to the accounts:—
(a) the principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier as at the end of each accounting year;
(b) the amount of interest paid by the buyer in terms of section 16 of the Micro, Small and Medium Enterprises Development Act, 2006, along with the amount of the payment made to the supplier beyond the appointed day during each accounting year;
(c) the amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified under the Micro, Small and Medium Enterprises Development Act, 2006;
(d) the amount of interest accrued and remaining unpaid at the end of each accounting year; and
(e) the amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006.
(2) in the second column, relating to “Liabilities”, under the heading “current liabilities and provisions”, after item (2), the following sub-items shall be substituted, namely:—
(a) total outstanding dues of micro enterprises and small enterprises; and
(b) total outstanding dues of creditors other than micro enterprises and small enterprises.
(3) In the “Notes” embodying General Instructions for preparation of balance sheet, for item (q), the following shall be substituted, namely:—
(q) the terms ‘appointed day’, ‘buyer’, ‘enterprise’, ‘micro enterprise’, ‘small enterprise’ and ‘supplier’, shall be as defined under clauses (b), (d), (e), (h), (m) and (n) respectively of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006.

2. This notification shall come into force on the date of its publication in the Official Gazette.
[F.No.l/5/2006/CL.V]

Also, you can refer the same with http://www.taxmann.net/Datafolder/flash/flash22nov.htm

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Micro, Small and Medium Enterprises Development Act, 2006

Thanks to my Guru V.S. Datey for this article on MSMED Act,

Micro and small enterprises

As per section 7 of Micro, Small and Medium Enterprises Development Act, 2006 (which is effective from 2-10-2006) read with notification No. SO 1642(E) dated 29-9-2006, enterprises are classified as follows –

PARTICULARS	Investment in plant and machinery in case of enterprise engaged in manufacture or production of goods	Investment in equipment in case of enterprise engaged in providing or rendering of service
Micro Enterprise	Does not exceed Rs 25 lakh Rupees	Does not exceed Rs 10 lakh Rupees
Small Enterprise	More than Rs 25 lakhs but does not exceed Rs five crores	More than Rs 10 lakhs but does not exceed Rs two crores
Medium Enterprise	More than Rs 5 crore but does not exceed Rs 10 crores	More than Rs 2 crore but does not exceed Rs five crores

The enterprise may be proprietorship, HUF, AOP, cooperative society, partnership or undertaking or any other legal entity - Notification No. SO 1642(E) dated 29-9-2006.

While calculating value of plant and machinery, cost of pollution control, research and development, industrial safety devices and other items as may be specified by notification, shall be excluded. Mode of calculation of value of plant and machinery has been specified in notification No. S.O. 1722(E) dated 5-10-2006, issued by Ministry of SSI. Broadly, cost of toolings, erection and commissioning charges, electrical installations etc. is to be excluded. Second hand machinery is to be valued at price of new machinery.

It is clarified that section 29B of IDRA (which provides for reservation for small industries) will be applicable to enterprise engaged in manufacture, where investment is upto Rs five crores.

As per section 8 of Micro, Small and Medium Enterprises Development Act, 2006 (which is effective from 2-10-2006), micro or small enterprises may, at his discretion file a memorandum with authority prescribed by State Government. A medium enterprise engaged in manufacture or production of goods specified in industry specified in first schedule to IDRA shall file memorandum with authority as specified by Central Government.

The memorandum shall be filed by a medium enterprise engaged in production of goods with General Manager, District industries Centre or any District Level officer of equivalent rank in the department of State Government dealing with Micro, Small and Medium Enterprises (SO No. 1636(E) dated 29-9-2006).

National Board for Micro, Small and Medium Enterprises has been formed vide notification No. GSR 596(E) dated 26-9-2006. Advisory committee for classification of enterprises has been formed vide notification No. SO 1622(E) dated 27-9-2006.

Reservation for small industries – The list of industries reserved for SSI is being pruned. Items reserved for SSI as on 13-3-2007 were 114. Mostly there are low technology items and very few may be of interest to large industries. List is available on following website -

http://www.smallindustryindia.com/publications/reserveditems/Reserved_item_list_114_items.pdf

Also find the Act's Financial Implications in
http://thisisvj.googlepages.com/microsmallmedium.doc

Note on MSMED Act http://thisisvj.googlepages.com/NoteonMSME.doc

Format of letter to be recieved from Suppliers http://thisisvj.googlepages.com/ConfirmationLetterfromsuppliers.doc

Valuable SME Toolkit avail in http://india.smetoolkit.org/

Government site http://www.msme.nic.in/

Yes, this will help you in Company Secretary Final & Inter preparations and other professionals.

MUTUAL FUND - A COMPENDIUM

All about Mutual Funds - Credit to Mr. KK Kapoor of CS Mysore


What is a mutual fund?
A mutual fund is a pool of money contributed by individuals who have similar financial goals. The money collected is then invested in various securities such as equities, debentures/bonds and/or money market instruments.
What is a fund house/family?
A group of funds managed under one umbrella. The most basic fund family would include a stock, bond and money market-portfolio, although many funds have variants like sector funds, balanced funds.
For instance, Zurich India Mutual Fund is a fund house with several funds under it.
What is the Net asset value (NAV)?
The price or value of one unit of a fund. It is calculated by summing the current market values of all securities held by the fund, adding in cash and any accrued income, then subtracting liabilities and dividing the result by the number of units outstanding. Most open-ended funds companies compute NAVs once a day based on closing market prices.
What are a fund�s net assets?
The total value of a fund's cash and securities less its liabilities or obligations.
What is a fund portfolio?
A group of securities held by the mutual fund. A portfolio could be a mixture of stocks, bonds and cash.
What is the portfolio turnover of a fund supposed to mean?
A measure of the amount of buying and selling activity in a fund.Turnover is defined as the lesser of securities sold or purchased during a year divided by the average of monthly net assets. A turnover of 100 percent, for example, implies positions are held on average for about a year.
How are mutual funds classified?
Mutual Funds can be classified into the following 3 broad categories:
1. Portfolio classification
2. Functional classification
3. Geographical classification
How are mutual funds classified based on their portfolios?
Portfolio classification of mutual funds is done on the following basis:
Growth Funds
Investment objective: Capital appreciation of equity shares
Investment avenue: Equity shares of companies with high growth potential
For e.g.. Morgan Stanley Growth Fund
Income Funds
Investment objective: Providing safety of investments and regular income
Investment avenue: Bonds, debentures and other debt related instruments as well as equity shares of companies with high dividend payouts.
There are 2 aspects of income funds viz. Low investment risk with constant income and high investment risk generating high income.
For e.g.. Templeton Income Fund
Balanced Funds
Investment objective: Modest risk of investment and reasonable rate of return Investment avenue: Judicious mix of equity shares, preference shares as well as bonds, debentures and other debt related instruments.
For e.g.. GIC Balanced Fund
Money Market Mutual Funds (MMMFs)
Investment objective: To take advantage of the volatility in interest rates in the money market Investment Avenue: Certificate of deposits (CDs), call money market, commercial papers. Investors can participate indirectly in the money market through MMMFs.
For e.g.. IDBI-PRINCIPAL Money Market Fund 1997
Specialised Funds
Investment Objective: To take advantage of conditions in a particular sector or a specific income producing security
Investment Avenue: Specialised investments in securities of companies in certain sectors or specific income producing securities
For e.g.. Kothari Pioneer's Internet Opportunities
Fund
Leveraged Funds
Investment objective: To increase the value of the portfolio and benefit the shareholders by gains exceeding the cost of borrowed funds
Investment avenue: Speculative and risky investments, like short sales to take advantage of declining market.
Not common in India
Index Funds
Investment Objective: To increase the value of the portfolio in line with the benchmark index (for e.g.. BSE Sensex, SP CNX 50)
Investment Avenue: Investments only in those shares that form a part of the benchmark index, in exactly the same proportion, so that the value of the index fund varies in proportion with the benchmark index.
For e.g. UTI Nifty Index Fund
Hedge Funds
Investment Objective: To hedge risks in order to increase the value of the portfolio
Investment Avenue: Employ speculative trading principles - buy rising shares and sell shares whose prices are likely to fall.
Not common in India
How are mutual funds classified functionally?
Functional classification of mutual funds is done on the following basis:
Open ended scheme
Investors under this scheme are free to join the fund or withdraw from the fund at any time after an initial lock-in period. Such funds announce sale and repurchase prices from time to time. In an open-ended scheme, investors can resell units in the fund to the issuing mutual fund at the net asset value (NAV) of the units. This is because open-ended schemes are permitted to buy/sell their own units. For e.g. Alliance Capital 1995 Fund
Close-ended scheme
Unlike the open-ended schemes, close-ended schemes do not issue units for repurchase redemption on a periodic basis. Its units can be redeemed only on termination of the scheme, or through dealings in the secondary market. In such schemes, the period of the scheme is specified at the outset. They have a definite target amount for the funds and cannot sell more after initial offering. For eg. UTI Mastergain 1986
How are mutual funds classified geographically?
Mutual funds can be classified geographically on the following basis:
Domestic funds
Domestic fund houses launch funds, which mobilise savings of the nationals within the country. These schemes could fall under any of the categories mentioned under portfolio classification and functional classification. Schemes launched by Indian MFs like GIC MF, UTI LIC MF, SBI MF, Canbank MF, Bank of Baroda MF, Bank of India MF, Morgan Stanley, Templeton, Alliance.
Offshore Funds
Offshore funds can invest in securities of foreign companies, after requisite permission from RBI. The objective behind launching offshore funds is to attract foreign capital for investment in the country of the issuing company. These funds facilitate cross border fund flow, which is a direct route for getting foreign currency. From the investment point of view, Offshore funds open up domestic capital markets to the international investors and global portfolio investments.
What are the different plans that mutual funds offer?
Mutual Funds in order to cater to a range of investors, have various investment plans. Some of the important investment plans include:
Growth Plan
Under the Growth Plan, the investor realises only the capital appreciation on the investment (by an increase in NAV) and does not get any income in the form of dividend.
Income Plan
Under the Income Plan, the investor realises income in the form of dividend. However his NAV will fall to the extent of the dividend.
Dividend Re-investment Plan
Here the dividend accrued on mutual funds is automatically re-invested in purchasing additional units in open-ended funds. In most cases mutual funds offer the investor an option of collecting dividends or re-investing the same.
Systematic Investment Plan (SIP)
Here the investor is given the option of preparing a pre-determined number of post-dated cheques in favour of the fund. He will get units on the date of the cheque at the existing NAV. For instance, if on 25th March, he has given a post-dated cheque for June 25th, he will get units on 25th June at existing NAV.
Systematic Withdrawal Plan
As opposed to the Systematic Investment Plan, the Systematic Withdrawal Plan allows the investor the facility to withdraw a pre-determined amount/units from his fund at a pre-determined interval. The investor�s units will be redeemed at the existing NAV as on that day.
Retirement Pension Plan
Some schemes are linked with retirement pension. Individuals participate in these plans for themselves, and corporates for their employees.
Insurance Plan
Some schemes launched by UTI and LIC offer insurance cover to investors.
What is a 401(k) plan?
A popular contribution program in the USA, available through many employers. Within these tax-sheltered plans, participants often can choose mutual funds as one or more of the investment choices.
This plan (or even a variant) is yet to be introduced in India.
What are the advantages of investing in a mutual fund?
Mutual funds are superior to other comparable investment avenues because of the following reasons:
Investors are exposed to reduced investment risk due to portfolio diversification, economies of scale in transaction cost and professional management.
Limited Risk
Investors are exposed to reduced investment risk due to portfolio diversification, economies of scale in transaction cost and professional management.
Diversified investment
Small investors can participate in larger basket of securities and share the benefits of efficiently managed portfolio by experts, and are freed from maintaining records of company share certificates, and tracking tax rules. Mutual fund investments are less risky due to portfolio diversification, which is possible mainly due to large funds available at their disposal. Small investors can never spread their risks across such a wide portfolio, as can mutual funds.
Freedom from tracking investments
Investors do not have to track their investments regularly, as the tracking is done by experts who buy and sell securities for them. Investors are only required to track the performance of the mutual fund.
Professional management
Mutual funds are run by professionals, with experience in portfolio management. Analysts employed by mutual funds analayse data and information available in a manner that cannot be matched by the lay investor.
Tax benefits
Income tax benefits are granted to investors in mutual funds, making it more tax efficient as compared to other comparable investment avenues.
Who is a custodian?
The custodian, an independent organisation, has the physical possession of all securities purchased by the mutual fund, and undertakes responsibility for its handling and safekeeping. For instance, the Stock Holding Corporation of India Ltd (SCHIL) is the custodian for most fund houses in the country.
What is an Asset Management Company (AMC)?
A highly regulated organisation that pools money from many people into a portfolio structured to achieve certain objectives. Hence it is termed as an Asset Management Company. Typically an AMC manages several funds - open-end /closed-end across several categories - growth, income, balanced. Every mutual fund has an AMC associated with it.
For instance, Alliance Capital Mutual Fund is associated with Alliance Capital Asset Management Company Ltd.
What is load?
It is a charge collected by a mutual fund when it sells units. It can be either front-end load (i.e., the charge is collected when an investor buys the units) or back-end load (i.e, the charge collected when the investor sells back the units). Some schemes do not charge any load and are called No Load Schemes
What is an ex-dividend date?
Normally, one business day after the record date. Investors purchasing unit on or after the ex-dividend date are not entitled to collect dividends or bonus units. The NAV falls by the amount of the dividend distributed and/or bonus issued. The terms ex-bonus and ex-dividend often are used synonymously.
For instance, if the record date for dividend is October 15th, then investors who don't have their names in the list of unitholders as on that day, will not receive dividend. This works very similar to dividend and bonus declarations in the case of stocks.
How does one calculate the expense ratio for a fund?
The expense ratio for a fund is the annual expenses of a fund (at the end of the financial year), including the management fee, administrative costs, divided by the number of units on that day.
How relevant is the expense ratio?
As is evident from the definition, a lower expense ratio underlines the efficiency of a fund. This is a yardstick that investors need to apply to gauge the efficiency (or lack of it) between funds.
What is cheque-writing facility?
A service enabling investors to write cheques against their mutual fund account balances. Cheques usually must meet a certain minimum amount and the service is restricted to money-market funds.
What is a contingent deferred sales charge (or CDSC)?
A back-end load imposed on an investor if he exits from the fund before a pre-determined period (say 6 months). The charges decline the longer an investor stays invested with a fund.
What is a daily dividend fund?
A fund (money-market or bond) that calculates dividends daily, paying out or reinvesting the same.
What are derivatives?
Financial instruments based on some primary underlying asset or index such as a stock, bond, commodity, or a benchmark of stock prices. Derivative securities fluctuate up and down in tandem with the primary security. Derivatives often are leveraged, making them more volatile. They can be used to speculate as well as to reduce or control an unwanted risk. Options and futures are standardised derivatives. Others are customised to meet specific needs.
What is an Initial public offering (IPO)?
The sale of a company's shares or a fund house�s mutual fund to investors for the first time.
What is an asset management fee?
The fee charged by the asset management company (AMC) for portfolio management. The fee charged on an annual basis is calculated as percentage of net assets under management.
What is growth investing ?
A popular investment style whereby fund managers identify companies showing promise of above-average earnings. Stocks are held primarily for price appreciation as opposed to dividend income. Growth investors (or managers) are willing to pay a premium to acquire a stock if they feel it has the right prospects. Growth investing is an alternative to value investing.
For instance, buying an over-valued software stock would be the part of a growth manager�s investment strategy.
What is value investing?
As opposed to growth investors, value investors (or managers) focus on identifying under-priced stocks. Value investors look out for stocks selling at low prices, but which have the potential to give attractive returns in future.
What is hedging?
A general term used to describe any of several risk-reduction strategies. A fund manager might partially hedge against a market decline simply by moving a larger fraction of the portfolio into cash. Alternatively, the manager could sell stock-index futures contracts. If the market falls, the gains on the shorted futures would more or less offset the decline in the portfolio's value.
What is passive investing?
This is the investment style espoused by index fund managers who simply invest by benchmarking their portfolio to a common stockmarket index like the BSE-30 or the SP CNX-50. The fund manager only invests in stocks in the index in exactly the same proportion. There is no attempt to beat the benchmark index, but to simply replicate it, and therefore it is called as passive investing. The index fund will never outperform the benchmark index, nor does it attempt to.
FAQs on taxation
What tax benefits are available to those who invest in mutual funds? Please mention the tax benefits on equity-oriented and debt-oriented funds separately.
Dividends declared by debt-oriented mutual funds (i.e. mutual funds with less than 65% of assets in equities), are tax-free in the hands of the investor. However, a dividend distribution tax of 14.03% (including surcharge) is to be paid by the mutual fund on the dividends declared. Long-term debt funds, government securities funds (gsec/gilt funds), monthtly income plans (MIPs) are examples of debt-oriented funds.
Dividends declared by equity-oriented funds (i.e. mutual funds with more than 65% of assets in equities) are tax-free in the hands of investor. There is also no dividend distribution tax applicable on these funds. Diversified equity funds, sector funds, balanced funds (with more than 65% of net assets in equities) are examples of equity-oriented funds.
Amount invested in tax-saving funds (ELSS) would be eligible for deduction under Section 80C, however the aggregate amount deductible under the said section cannot exceed Rs 100,000.
How are equity-oriented funds defined?
A mutual fund must have at least 65% of its net assets in equities/stocks to qualify as an equity-oriented mutual fund
Do equity/balanced funds have to maintain a daily, minimum 65% equity allocation?
Not really, the equity allocation is calculated based on the weekly average net assets in equities. If this average is below 65%, the fund stands to forfeit its equity-oriented status.
Do balanced funds qualify as equity-oriented funds?
If balanced funds maintain a minimum (average) 65% equity allocation, they do qualify as equity-oriented funds.
Is a capital gain on sale/transfer of units of mutual fund liable to tax? If yes, at what rate?
Section 2(42A): Under Section 2(42A) of the Act, a unit of a mutual fund is treated as short-term capital asset if the same is held for less than 12 months. The units held for more than twelve months are treated as long-term capital asset.
Section 10(38): Under Section 10(38) of the Act, long term capital gains arising from transfer of a unit of mutual fund is exempt from tax if the said transaction is undertaken after October 1, 2004 and the securities transaction tax is paid to the appropriate authority. This makes long-term capital gains on equity-oriented funds exempt from tax from assessment year 2005-06.
Short term capital gains on equity-oriented funds is chargeable to tax @10% (plus education cess, applicable surcharge). However, such securities transaction tax will be allowed as rebate under Section 88E of the Act, if the transaction constitutes business income.
Long-term capital gains on debt-oriented funds are subject to tax @20% of capital gain after allowing indexation benefit or at 10% flat without indexation benefit, whichever is less.
Short-term capital gains on debt-oriented funds are subject to tax at the tax bracket applicable (marginal tax rate) to the investor.
Section 112: Under Section 112 of the Act, capital gains, not covered by the exemption under Section 10(38), chargeable on transfer of long-term capital assets are subject to following rates of tax:
Resident Individual & HUF - 20% plus surcharge, education cess.
Partnership Firms & Indian Companies - 20% plus surcharge.
Foreign Companies - 20% (no surcharge)
Capital gains will be computed after taking into account the cost of acquisition as adjusted by Cost Inflation Index, notified by the Central Government.
"Units" are included in the proviso to the sub-section (1) to Section 112 of the Act and hence, unit holders can opt for being taxed at 10% (plus applicable surcharge, education cess) without the cost inflation index benefit or 20% (plus applicable surcharge) with the cost inflation index benefit, whichever is beneficial.
Under Section 115AB of the Income Tax Act, 1961, long term capital gains in respect of units, purchased in foreign currency by an overseas financial, held for a period of more than 12 months, will be chargeable at the rate of 10%. Such gains will be calculated without indexation of cost of acquisition. No surcharge is applicable for taxes under section 115AB, in respect of corporate bodies.
Is it possible to offset the capital loss on a mutual fund investment after a dividend declaration?
This is a practice that is popularly referred to as 'dividend stripping'. The capital loss from a dividend declaration can be offset if you have remained invested in the mutual fund 3 months before and 9 months after the dividend declaration. If you haven't adhered to this guideline then you cannot offset the capital loss arising from a dividend declaration.
What is the tax implication of a bonus/rights issue on mutual fund units?
Under Section 55(2) (AA), bonus on mutual fund units has a zero (nil) cost of acquisition. The holding period is calculated from the date of allotment of mutual fund units. The net sales proceeds are treated as the capital gain. The period of holding of such issue is reckoned from the date of the allotment of such issue.
The cost of acquisition of the rights issue on mutual fund units is the amount actually paid for acquiring such right, according to Section 55(2) (AA) (iii). The holding period is reckoned from the date of allotment.
Where there is a transfer of these rights, the cost of acquisition of such rights is to be taken as 'Nil' according to Section 55(2) (AA) (ii). Sale price of such transferred rights will be taken as capital gain.
The period of holding in the hands of the transferor is computed from the date of offer, made by the company to the date of renouncement.
What are the tax benefits for the foreign investors?
Section 115E: Under Section 115E of the Act, capital gains, chargeable on transfer of long-term capital assets of an Non-Resident Indians (NRIs) are subject to following rates of tax:
Investment income:
20%
Long term capital gains:
10%
Subject to surcharge and education cess.
Section 10(23D): Under provisions of section 10(23D) of the Act, any income received by the Mutual Fund is exempt from tax.
Section 115R: Under Section 115R, the Income distributed to a unit holder of a Mutual Fund shall be charged to following rates of tax to be payable by the Mutual Fund.
Amounts distributed to individual or HUF:
12.5% + SC, EC
Amounts distributed to others:
20.0% + SC, EC
However, the above distribution tax will be exempted for an open-ended Equity-Oriented Funds (funds, investing more than 50% in equity or equity related instruments).
Is wealth tax applicable to mutual fund investments?
No. Units, held under the Scheme of the Fund, are not treated as assets within the meaning of Section 2(EA) of the Wealth Tax Act, 1957 and are, therefore, not liable to Wealth-Tax.
Is gift tax applicable to mutual funds investments?
No. Units of the mutual fund may be given as a gift and no gift tax will be payable, either by the donor or the donee.
How can I avoid payment of capital gains on mutual fund investments?
The capital gain, which is not exempt from tax as explained above, can be invested in the specified asset, mentioned below, within 6 months of the sale.
Specified asset means any bond redeemable after 3 years:
Issued on or after April 1, 2000 by NABARD (National Bank for Agriculture and Rural Development or NHA (National Highways Authority of India
Issued on or after April 1, 2001 by the Rural Electrification Corporation Ltd.
Issued on or after April 1, 2002 by the National Housing Bank or by the Small Industries Development Bank of India.
Such capital gains can also be invested in any residential house property in accordance with Section 54F of the Act and one can claim exemption from capital gains.