Budget holds out little cheer for MF industry

Proposal to raise dividend distribution tax on debt funds disappoints

Finance Minister P Chidambaram relaxed the eligibility for first-time investors to invest in the tax-saving Rajiv Gandhi Equity Savings Scheme (RGESS), but the steps fell short of the mutual fund (MF) industry's expectations. The proposal to raise dividend distribution tax on debt funds in line with the liquid funds has come as a disappointment to the industry.

The Budget has proposed the income limit of investors planning to invest in RGESS to be raised to Rs 12 lakh from the current Rs 10 lakh. Further, it proposed to allow investors to invest in MF schemes as well as listed shares, which fall under RGESS, for three consecutive years as against one year currently.

"There could have been few more measures for RGESS," said Sandesh Kirkire, chief executive officer of Kotak Mutual Fund.

Imtaiyazur Rahman, acting chief executive officer of UTI Mutual Fund and Nilesh Sathe, director and CEO of LIC Nomura MF said the relaxation of RGESS rules could result in more investors coming through this route.

The proposal to reduce securities transaction tax (STT) from 0.25 per cent to 0.001 per cent on redemptions of MF plans /ETF at fund counters and on sale of units on exchanges from the current 0.1 per cent to 0.001 per cent are positives for the industry but may not be game-changers, said officials.

"Slashing STT is a big move. But the issue is investors do not come keeping STT in mind. How to attract more investors to equity is important," said Kirkire.