STP from Hdfc Cash Management fund to Hdfc Prudence…which option to choose???

POSTED BY Samad Sheikh ON July 10, 2012 9:45 am COMMENTS (19)

Hello
I have invested Rs 9lakhs for 3-4 yrs in Hdfc Cash Mangement Fund with weekly STP of Rs 6250 to Hdfc Prudence Fund Growth.
The option for Hdfc Cash Mangement Fund is Dividend Reinvestment while for Hdfc
Prudence it is Growth..
Is Dividend reinvestment in Hdfc Cash Management and growth in Hdfc Prudence OK…
If not then which option is better and why?
Thanks

19 replies on this article “STP from Hdfc Cash Management fund to Hdfc Prudence…which option to choose???”

  1. Samad Sheikh says:

    Hello Ashal,Banyan ,Hemant and all
    Awaiting your response to my query…I have given my Indian Income which is negligble in India…So what option should I take after 5 months when I become a resident Indian…
    would appreciate ur advise..
    Thanks and Regrds
    Samad

  2. Jig says:

    Dear Samad,

    Are you sure you are investing in PPF being an NRI?

    Can anyone throw some light on investing in PPF by different way. ( for NRI ? )

    What are difference in i am investing in HDFC liquid fund & HDFC CM TAF?
    I am keeping my liquid amount in HDFC liquid fund for partial payment of real estate. Is this fine option?

    ( Sorry for adding my queries in between )

    thanks

    1. Dear Jig, If the PPF account was opened as a RI, it can be continued for the initial 15Y block or the renewal block of 5Y as the case may be. Yes that Liquid fund is OK.

      Thanks

      Ashal

  3. Samad Sheikh says:

    Hello Ashal,Banyan ,Hemant and all
    Awaiting your response to my query…I have given my Indian Income which is negligble in India…So what option should I take after 5 months when I become a resident Indian…
    would appreciate ur advise..
    Thanks and Regrds
    Samad

  4. Samad Sheikh says:

    Hi
    @Ashal…I do not have any income …I just have Rs 19000 Monthly SIP’S in Mutual Fund ,PPF etc…Therefore what option should I take now and when I go to India after 5 month
    That’s all
    Thanks

    1. Dear Samad, what ‘ll be your Indian income once you return to India after 4-5 months?

      Within the given situation. Switching to Growth option is advisable as in the current year, your indian income is near zero so you can set off any gains from debt funds within the zero tax slab of 2L Rs.

      Thanks

      ashal

  5. Samad Sheikh says:

    Hi all appreciate ur inputs…
    I m getting a bit confused…

    1. @Ashal as u pointed out that I should continue in Dividend reinvestment option as long as I am an NRI….Fine…But what option should I take after 5 months when my status changes and I become a Resident Indian?

    2.@BanyanFa …As per ur advise I should continue with growth option even when I am a NRI and also when I become a resident Indian….is it what you suggested?

    3.Also what r ur views on Hemants advise…

    Pls advise me on on these 3 points…

    Would appreciate ur help and advise so that I take correct measures…
    Thanks
    Pls reply
    Regards
    Samad

  6. BanyanFA says:

    Ashal,
    I do appreciate that the Dividend Reinvestment option will prevent 30% TDS. However, this TDS can be recovered in full by filing a tax return. Div Distribution Tax (DDT), though less than 30%, can not be recovered. Hence, I was recommending growth option till the time the income in India is not over 20% bracket.
    Hence if Samad goes with Growth Option, he can continue to stay with the option even after he becomes resident in India till his income in India increases above the 20% bracket.

    Does that make sense ?

    regards
    BanyanFA

    1. Dear BanyanFA, I’m agree with you on the part that DDT is non recoverable where as TDS can be recovered if possible. Now the important question here is – What’s the current Indian Income of Samad from all sources, to determine his tax slab?

      Dear Samad, please quote your indian income from all sources.

      Thanks

      Ashal

  7. Hemant says:

    Dear All,
    Can somebody throw light on following option for Samad:
    He should split his investment in HDFC Cash Mangement Fund in two parts:
    (1) One part for Rs 3,25,000 (@ Rs 6250 for 52 weeks i.e. one year) in dividend re-investment option (presuming that Ashal’s view on tax free dividend in gulf is correct as I do not have any knowledge in this regard) with STP to HDFC prudence
    (2) Another part of remaining Rs 600,000/- in HDFC Cash Management Growth option with no STP right now. He should opt for STP from this corpus of growth option after one year so that the gains from this fund would qualify as long term capital gains from debt fund and would attract 10% without indexation or 20% tax with indexation (presuming DTC is not in picture). If he wishes to take care of DTC too, he has to re-align/split this part further to see if he can complete the tenure of holding in HDFC-CMF-Growth plan for one complete year from the end of this financial year to ensure the benefits.
    I hope I am not making it too complicated.
    Regards
    Hemant

    1. BanyanFA says:

      Hemant,
      I would not be able agree with you. Splitting the funds in two parts will not acheive any objective. The issue is that :
      1. Currently Samad is NRI in ME
      2. 5 months after Samad shall be a resident.

      Hence the solution which I have detailed in the comments below may be best suited.

  8. Samad Sheikh says:

    Hello BanyanFA
    Thanks for ur advise..I am not in India …I m in middle east…I am getting confused…My status is NRI right now and it will change to Indian resident after 4 or 5 months when I shift to India for good. I will again ask my query
    I have invested Rs 9 lakhs in HDFC CMP Treasury Advantage Plan -Retail-Monthly Dividend ,option: Reinvest and am doing a weekly STP of Rs 6250 to Hdfc Prudence Growth

    I have 2 queries..

    A) I will be NRI for 5 months…what option should I choose now?
    B) Once my Status changes from NRI to resident Indian ,then what option should I choose?

    BanyanFA ,Ashal,Manish and all
    Looking forward to ur advise on these two queries…
    Thanks
    Regards
    Samad

    1. Dear Samad, as you are NRI from Gulf, the dividends are tax free to you, hence the point raise by dear BanyanFA for taxation of dividend income does not apply to you. Please keep Div. reinv. option as it is till you are NRI for the fact that in case you switch to growth option now, any redemption in the form of STP ‘ll invite TDS @ 30% rate on the gains if any.

      Hope it clarifies the matter to you.

      Thanks

      Ashal

  9. BanyanFA says:

    Samad,
    Your query about being NRI changes the pictures. Generally in most countries outside India (except middle east), dividend income is not tax free and charged at the same rate of tax as your normal income. However, Capital Gain is taxed at a lower rate.

    What I would advise is to invest in HDFC CMP as Growth option and then do a STP into Prudence. You can continue to do this till you are in India and your income in India is less than 20% tax bracket. Once it goes beyond 20% bracket, then invest in HDFC CMP Treasury Advantage Plan with Div Reinvest option.

    HDFC CMP charges Dividend Distribution Tax at around 28%. However, HDFC CMP Treasure Advantage Plan charges DDT at around 14%.

    Hope that clarifies the matters.

    Regards
    BanyanFA

  10. Samad Sheikh says:

    Ashal
    Thanks…What to do after 4 months when my status changes from NRI to Indian…
    Regards

  11. Samad Sheikh says:

    Ashal,Sorry I forgot to mention….my status is NRI right now and will change to resident Indian in 4 or 5 months…Seeing this which how to do I go about it?Dividend ,Dividend reinvestment or Growth…
    Regards

    1. Dear Samad, please continue with Div. Reinvestment option in HDFC Cash Management & Growth option in HDFC Prudence as of now. No need to change.

      Thanks

      Ashal

  12. Samad Sheikh says:

    Ashal Thanks
    and what if I choose growth Option in Cash Mangement….

  13. Dear Samad, whenever there is a dividend declaration, the same ‘ll be reinvested in your debt fund (Cash Management). So this part is of from taxation purpose, if you fall in 30% tax slab, the dividend option is beneficial as the effective tax rate is around 15% only.

    Regarding HDFC Prudence, as you are in no need of money to withdraw or profit booking from HDFC Prudence, your choice of growth fund is again good.

    Thanks

    Ashal

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