ASNB Funds: Taxation of Dividends

All these years many of us have taken for granted that dividends derived from ASNB funds are not taxed forever unlike mutual funds managed by other companies. Well it's not strictly correct that these ASNB funds are going to be tax-exempted forever except perhaps for ASB.

Reading the Master Prospectus 2013 -2014 today , I discovered that the tax exemptions for all funds except ASB are temporary in nature and investors should not be taken by surprise if the time should come when all their dividends issued by the various ASNB funds will be taxed in the future.

The current taxation status of the funds are as below:

The Funds managed by ASNB are granted an exemption from income tax under Section 127(3)(b) of the Income Tax Act, 1967

Funds	Taxation Status
ASB	The Fund is exempted from income tax for the year of assessment 1991 and subsequent years.
ASN ASN 2 ASN 3 ASG-Pendidikan ASG-Kesihatan ASG-Persaraan ASW 2020 ASM ASD	These Funds are granted an extension on the period of exemption from income tax for the year of assessment 2007 to the year of assessment 2016.
AS 1Malaysia	The Fund is exempted from income tax for the year of assessment 2009 to the year of assessment 2018.

Source: ASNB Master Prospectus 2013 -2014

There are many other aspects of these funds which are unknown unless you care to read the voluminous Master Prospectus. The point is if so-called new developments are taking place, you cannot feign ignorance as they are all already stated in the prospectus . So, go on read the prospectus to increase your knowledge about the funds you are investing in.

Icon Offshore : The Shockingly Ugly Ride

It looks like my investment in Icon Offshore is going to stay there for the next two years. With the current downgrading of the oil and gas sector, we can expect many of the local players in this industry will be in the doldrums. There are several factors contributing to this state of affairs from delayed projects to the rising stiff competition from foreign concerns. And there is also the fact that this industry is cyclical in nature.

Lamenting after the event whilst irritating, need to be released so as to learn from the debacle that I let myself into and risk my fund to existing in a dormant state. I have had this heart-dipping experience before during the Global Financial Crisis (GFC) in 2007-2008 when I made extensive losses in my plantation and construction stocks. I used the "opportunity" to buy more into stocks such as MRCB,Sime Darby and HSL and managed to recoup my losses by 2010.

Icon Offshore  IPO was 1.85 on 25 June 2014
 and now on a tumbling ride

However this current scenario is different in the sense that the stock I bought is recently launched  as an IPO, though now I am encouraged to think that the stock was unfairly valuated at 1.85. It made only a slight premium for about ten days then it started falling and now it has fallen precipitously with the current declining contract rate for offshore transport services. That has sealed the fate for Icon offshore. I did think of dollar cost averaging but my instinct told me to let it go and I am glad I did just that.

Actually I was not successful in my application for Icon IPO instead I bought over the counter during those crucial 10 days after its launching and was nicely trapped by those who have prior knowledge of this industry and sold their shares relentlessly. It reminds me of the ugly Astro IPO but my loss on Icon this time is multiple that.

Then I remember a book on investment by Burton M Malkiel entitled " A Random Walk on Wall Street" where there was a warning about buying IPO stocks. He reminds that IPO stock is launched when somehow the people who own the company have negative knowledge about the environment in which it is operating. And these people are the ones who will sell their shares gleefully post IPO and make money from ignorant retail investors. They actually time their IPO launch and it is not a coincidence, it is a well thought out timing to share their losses with the public.

Remember JCY? That technology company which had made millions before deciding  to list on Bursa just before the hard drive industry started to decline? Yet had we  read the financial report of Western Digitals and Seagate which order its supplies from JCY, we would not have been so adventurous in buying into the company's stock. The financial results were showing a decline in profit! The price was from 1.60 (IPO) to as low as 0.35 sen in less than nine months. The stupid thing I did was to dollar cost average and got myself right down to the pit. No fun there I must admit.

I have not learnt my lessons simply because I thought Icon was related to some government-linked outfit and its association with Petronas, our national oil giant, and so would not go on this route of failed ride and lose 30% of my investment on paper.

Though my loss is partly compensated by the uptrend in TM stock, I found this experience humbling and will definitely think thrice about buying IPO stocks. The last eight years have seen unhealthy activities on IPO stocks like Caring which was propped up by a single wealthy person and when he sells at the height of the price, the whole stock price comes tumbling down. The market is indeed a jungle, enter at your own risk!