Mumbai, Feb. 28: Equity schemes of mutual funds may look attractive for small investors after the finance minister declared that dividends in the hands of investors would be tax free.
At the mutual fund level there will be no dividend distribution tax for equity and equity-oriented schemes and 12.5 per cent distribution tax for debt schemes. Further, the finance minister clearly defined the change in the status of the country’s largest mutual fund. The two siblings UTI-1 and UTI-II were clearly differentiated in the budget speech. While UTI-I will not have to pay any dividend distribution tax, the new UTI Mutual Fund will be like any other mutual fund.
“UTI Mutual Fund is now a Sebi-compliant mutual fund and whatever rules are applicable to others will be applicable to us,” said a senior UTI official. He expected the benefits of the cut in small savings to directly accrue to mutual funds like UTI MF as small investors will look at other avenues to obtain attractive returns.
Fund managers had expected equity funds to be in the spotlight. “This policy will henceforth make investments into mutual funds much more attractive for both retail and institutional investors,” says Nikhil Johri, CEO of Alliance Capital Asset Management.
The relative advantages of mutual funds over other savings instruments such as bank deposits will focus significant attention on mutual funds particularly when the interest rates on administered small savings schemes have been brought down,” he added.