Financial Daily from THE HINDU group of publications
Friday, Mar 01, 2002
MF sector disappointed
MUMBAI, Feb. 28
MUTUAL funds have little praise for the Finance Minister with the removal of tax concessions on dividend payment. Also, allowing the funds to invest in foreign-rated securities has done little to lift the sentiment of the over Rs 1.1 lakh crore industry.
Industry players said that with the abolition of 10 per cent distribution tax on dividend for debt schemes, investors would shift from debt to equity schemes. The measures by Mr Yashwant Sinha could also see investors moving away from MF schemes, which had seen the sharp growth in fund mobilisation in the last 18 months due to the tax benefits.
``Withdrawal of tax benefits to the mutual fund industry is not a very encouraging move. There should be some incentive on tax deduction at source similar to that enjoyed by bank deposits,'' said Mr A.P. Kurian, Chairman, Association of Mutual Funds in India (AMFI).
``The budget is not positive for mutual fund mobilisations. The removal of dividend tax benefit would depress sentiment. However, enabling mutual funds to invest in select overseas debt securities is positive in the medium term,'' said Mr Ved Prakash Chaturvedi, CEO, Tata TD Waterhouse AMC.
But, after the initial disappointment, a few players saw some positives for the industry. Mr Krishnamurthy Vijyan, CEO, JM Capital Management, said, ``MFs were facing problem of short-term investments by large corporates and in the current scenario, with capital gains taxation continuing to remain attractive, we would attract more long-term investors.''
Our Kolkata Bureau adds:
Mr Kurian, AMFI Chief, is of the opinion that the tax proposal will ``undo a lot of good work'' put in by the industry during recent years.
But all this, AMFI is of the view, is not a positive step for investors in general, large or small. In fact, this could well prove to be a disincentive for such product-categories. as equity-linked savings schemes (ELSS), investment in which currently provides a 20-per cent benefit to investors under Section 88 of the Income-Tax Act.
``This might discourage long-term investors who can afford to stay locked in for three years and simultaneously avail of tax benefits as well,'' Mr Kurian observed.
According to Mr Sandeep Parwal, SPA Capital, tax-savings schemes could be hit along with, at least to a partial extent for individual investors, liquid schemes.
``Tax arbitrage for dividends will be missing from the MF scenario. It may also be difficult for intermediaries, in the initial stages, to sell funds on the strength of tax benefits alone. Individuals too will have to realign their strategies,'' he said.
The MF association, at another level, has welcomed the Government's move to support the equity-oriented funds of Unit Trust of India and other players in the industry.
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