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Friday, Jul 16, 2004

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Corporate interest in MFs unlikely to wane

K.R. Srivats

New Delhi, July 15

UTI Mutual Fund does not see the recent hike in withholding tax on the income distributed by debt-oriented mutual funds to corporates as a dampener for the latter's investment interest in such funds.

The country's second largest mutual fund is of the view that corporate interest in debt-oriented schemes would not wane, despite the higher withholding tax on the income received by them from such funds.

"I don't think corporate interest in the debt-oriented mutual funds would come down on account of the higher withholding tax issue. What could happen is that most corporates may prefer to move from dividend options to growth schemes where they could get returns in the form of capital gains," Mr A.K. Sridhar, Chief Investment Officer, UTI Asset Management Company Pvt. Ltd, told Business Line here.

The Finance Minister, Mr P. Chidambaram, had in his Budget speech announced that a 20 per cent withholding tax would be levied on incomes distributed to corporate unit holders by a debt-oriented mutual fund. For individuals and Hindu Undivided Family, the withholding tax on income distributed by a debt-oriented mutual fund would continue to be 12.5 per cent. These changes have taken effect from July 9. Prior to this, all recipients of income from a debt-oriented fund were subjected to uniform 12.5 per cent withholding tax.

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