May 4, 2000|
Finance Minister snubs UTI, AMFIís demands
The Yashwant Sinha-sweetener for software, pharma and housing is designed to give a boost to these sectors. However, the finance minister seems to have ignored the pleas of the Unit Trust of India (UTI) and the Association of Mutual Funds of India (AMFI) for a restoration of dividend tax on income schemes to 11% from 22%.
To put it bluntly there is nothing for the mutual fund industry in the latest budgetary amendments. The biggest grouse of mutual funds in the FY2000-01 union budget was the doubling of dividend tax on income schemes to (an effective) 22% (from 11% earlier). However not all mutual funds were equally affected by this provision as inflows from income schemes do not form a very large portion of total inflows.
Undoubtedly UTI was hit by this move more than any other mutual fund as inflows from its monthly income plans (MIPs) constitutes a significant portion of total inflows. Reports in a leading financial daily indicate that inflows in MIPs accounted for 20% of total inflows in UTI from July 1999 till date. This explains why MIPs are UTIís biggest ace after its flagship US-64 scheme.
So is the 22% imposition of dividend tax going to hit inflows in income schemes in a big way? Not according to some fund managers. In an interview to www.personalfn.com, Mr Sandesh Kirkire (Vice President - Fixed Income Kotak Mahindra Mutual Fund) revealed that dividends from debt schemes were still the most tax efficient form of income vis-a-vis other comparable avenues of investments (Provident Fund, Bank deposits). Therefore it seems unlikely that investors will realign their investments away from debt schemes to other investment avenues.
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