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"Investors will continue to look at mutual funds for savings as well as superior returns" - Views on News from Equitymaster
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  • Feb 28, 2002

    "Investors will continue to look at mutual funds for savings as well as superior returns"

    Mr. Sarvana Kumar is the Head of Fixed Income Funds at SBI Mutual Fund. Currently managing a fund size of Rs. 23,000 m, Mr. Kumar is an experienced Portfolio Manager with extensive exposure in corporate research. He has also been involved with dealings in government securities / call, non-SLR market and equity market.

    Mr. Sarvana Kumar is not short on qualifications. He is a BE (Electronics & Telecommunications) with an MBA (Finance) from IIM Bangalore and a CAIIB from the Indian Institute of Bankers, Mumbai. Before joining SBI MF, Mr. Kumar had worked with India's premier mutual fund UTI for 8 years. At UTI, he was the managing Gilt Fund, Bond Fund and Money Market Fund with an asset size of Rs. 35,000 m.

    We interviewed Mr. Kumar post-budget, to assess his take on the budget and his views on where the mutual fund industry will go from here.

    PFN How will the decision to tax mutual fund dividends in the hands of investors impact fund inflows?

    Mr. Sarvana Curently, the dividend distribution tax is deducted at the mutual fund side at the rate of 10.2%. As per the 2002-03 Budget , the tax on the mutual fund dividend distribution will be deducted at the hands of the investors. More than 90% inflow into liquid funds as well as more than 60% inflow into income funds as well as gilt funds comes from corporates as well as HNIs (high networth individuals). Our expectation is that, to some extent the inflow into mutual fund industry may be affected by the recent move.

    The cap on RBI Relief Bond (maximum of Rs.2 lakh) and volatility in equity funds may however encourage an inflow in debt funds.

    PFN Taxation was a major draw for investors, going forward, what do you think is going to lead to a revival in the industry's fortunes?

    Mr. Sarvana In future due to slack in economic recovery and ample liquidity in the system, we do anticipate that Government Securities (Gsecs) will appreciate in future. We are also anticipating the private savings rate (23.4 %) will improve further. So going forward, investors will be looking at mutual funds for savings as well as superior returns. Risk-averse investors may prefer debt funds compared to equity funds.

    PFN After the budget, which sectors and companies look attractive to you?

    Mr. Sarvana For infrastructure, government plan to spend a further Rs 37,919 crores. So, the cement sector will likely do well. PSU divestment will accelerate further. So, potential PSU divestment companies look attractive. Quality front line IT stocks also look attractive.

    Recommendations: Cement: Gujarat Ambuja, ACC, L&T

    PSU: BPCL, HPCL, Neyveli Lignite Corporation, IPCL

    IT: Infosys, Wipro, HCL Tech



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