Industry sources said that JM Financial MF has collected close to Rs. 5,800 crore in its JM Financial Arbitrage Advantage Fund.
JM Financial Mutual Fund has recently introduced an annual bonus option in its open ended equity fund called JM Arbitrage Advantage Fund with effect from August 01. Industry sources claim that the fund house has collected close to Rs. 5,800 crore in less than a week’s time.
Manoj Nagpal of Outlook Asia Capital tweeted, “Most mutual funds are now introducing bonus options so corporates can do a bonus strip for tax planning.” Bonus stripping arises on sale or purchase of units of equity mutual funds after/before certain period. It helps in setting off capital loss against capital gain in other capital assets. For instance, if an investor buys MF units under bonus option 91 days prior to record date of bonus and sells the original units subsequently after record date, he/she qualifies for setting off. Also, in case the investor sells original units after nine months of record date, he/she can claim to set off the capital loss. However, the corporate houses don’t prefer the latter option due to its long holding period. The accumulated bonus units, off course, treated as tax free after a year since the arbitrage funds are treated like equity funds for tax treatment. In addition, SEBI rules says that bonus units should not be subject to exit load.
Simply put, in a bonus issue, the investor does not pay anything. The fund allots new units for free. Thus, in a 1:1 bonus issue, the investor is allotted 1 new unit (free) for each unit already held by the investor. Since the net assets of the scheme remains the same – only the number of unit increases - the NAV will get reduced proportionately.
Another Mumbai based IFA said that the fund house has collected money largely from corporate houses.
JM Financial, in its addendum dated July 28, has said, “Bonus units will be issued by capitalizing net distributable surplus and the amount standing to the credit of the distributable reserves of the annual bonus option of the scheme, as on the said record date. The actual declaration of bonus and ratio of bonus units and frequency thereof will, inter-alia, depend on availability of amount to the credit of reserves and/ or availability of distributable surplus, calculated in accordance with SEBI (Mutual Fund) Regulation, 1996 and will be at the sole discretion of trustees and the decision of trustees shall be final in this regard.”
An email sent to JM Financial MF officials didn’t elicit response till the time of writing this story. Cafemutual could not independently verify that the fund house has collected Rs. 5,800 crore in its arbitrage fund.
JM
Financial manages assets of Rs. 6,957 crore as on June 2014.
