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A Question of 'Liq-uity'

The fund is looking to leverage the gains made in safe funds via the more riskier equity route

Bharti AXA Asset Management Company (AMC) is a new fund house, their first fund was launched in July 2008 -- Bharti AXA Treasury Advantage. And since then it has launched nearly 5 funds offering investors the flexibility of many supplementary options.

Now, it has come up with yet another new facility for its existing funds, which is called ‘Liq-uity’.

Under this option an investor can transfer the daily gains earned by the Bharti AXA Liquid Fund (BALF), which is an Ultra-Short Term fund, and Bharti AXA Treasury Advantage Fund (BATrAF), which is a Liquid Plus fund, to Bharti AXA Equity Fund. While BALF generated 2.05 per cent returns, BATrAF year-to-date (YTD) return is 2.3 per cent as on 10 June, 2009. The performance of these funds can be juxtaposed to the category returns generated by Liquid Plus funds, which is 9.06 per cent in 2008. The returns for Ultra-Short Term category is 8.28 per cent in 2008. Bharti AXA Equity delivered YTD returns of 51.78 per cent

The major advantage that this facility offers is that it will give individuals, fund managers or companies the option to protect their capital while enjoying the benefit of appreciating returns.

Bharti AXA AMC is looking for unique solutions that will provide investors the opportunity to leverage their safe investments to generate greater gains. This is quite different from what is provided by other funds. For example, ICICI Pru Target Return offers the option to shift into debt funds after achieving a specific target.

Here the shift of gains will occur on a daily basis under two of its debt funds to an equity fund. Small investors will not really be able to benefit from this option as the minimum amount required is Rs 10 lakh. Under the institutional plan, the minimum amount is Rs 1 crore, while the super-institutional plan (it exists only in BALF) takes the amount to Rs 25 crore.

If at any point the minimum balance of the fund reduces below Rs 10 lakh for the individual then it will automatically become a dividend re-investment plan. Therefore, rather than transfer the gains to the equity fund the gains shall be reinvested in BALF/BLTrAF till the minimum level is reached.

The good part is there is no entry load at any stage. While for the debt fund there is no exit load also. But an exit load will be applicable on leaving the equity fund within 6 months from the date of allotment. The amount has been set at one %.

Tax application too would be different under this facility. Generally, an investor has to pay taxes on gains in a debt fund at the time of withdrawal. Now, under ‘Liq-uity’, that will not happen as all gains will be transferred to the equity fund on a daily basis. The AMC will deduct dividend distribution tax (DDT) when it pays the dividend and then transfer the gains amount to the equity fund, but beyond that no other tax would be charged. And if the investor holds onto his investment in equity for more than one year, then even these gains would be tax free.

Now this the investor doesn’t withdraw from the equity fund before one year then all gains will be tax free.

The facility with the Bharti AXA Liquid Fund option will be launched from June 13, 2009 and Bharti AXA Treasury Advantage Fund from June 14, 2009.

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