• FEBRUARY 20, 2001

What the budget has in store for mutual funds?

The Union Budget 2001-02 is less than 10 days away. There is a lot of anticipation building up in areas of dividend distribution tax and pension funds.

The domestic mutual fund industry is currently witnessing a semblance of a slowdown and needs a strong tonic from the finance minister.

Leading the mutual fund industry’s wish list is withdrawal of distribution tax on dividends. Currently open-ended funds with over 51% equity composition can declare tax-free dividends. All other funds declare dividends only after deducting 22% distribution tax. The government is expected to rationalise the tax structure on demands made by several chambers of commerce especially since this has dampened mood in equity markets. With a rationalisation, mutual funds will also benefit.

Withdrawal of the distribution tax is something a lot of fund managers are looking forward to. In an interview to personalfn.com, Vivek Reddy of Kothari Pioneer revealed, ‘Among the steps the budget could take to stimulate the capital markets are - withdrawal of distribution tax an dividends declared by mutual funds/corporates and enhancement of the Rs.60,000 limit under Section 88 (rebate); also removal of sub-limits under Section 88.

P.S. Subramanyam (Unit Trust of India, Chairman) opined, ‘The government is likely to take a commercial view on this matter (distribution tax).’

Pension funds is another issue that has long been on the wish list of the domestic mutual fund industry. The industry wants the finance minister to permit mutual funds to launch individual retirement accounts (IRAs) with tax deferment benefits. IRAs along with the more popular 401 K account for over 1/3rd of the US mutual fund industry (total US$ 7 trillion).

After last year’s disappointing budget when distribution tax was hiked to 22% (effectively) and sections 54EA/EB (capital gains) were scrapped, the industry is looking forward to a healthy tonic to infuse some life into it.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407