Sector report: Mutual funds
Key features of the last budget
- Income received from Unit Trust of India (UTI) and other mutual funds was exempted from income tax in the hands of investors.
- Unit Scheme-64, all open-ended equity-oriented schemes of UTI and mutual funds with more than 50 per cent investment in equity were exempted from dividend tax for three financial years starting on April 1, 1999.
- Dividends were subjected to tax in the hands of corporate entities in the form of distribution tax.
- Long term capital gains tax for resident Indians on transfer of shares and securities was brought down to 10 per cent.
Background
- The mutual fund industry has grown substantially in 1999-00.
- Net inflows to the industry during April-December 1999 through new and existing schemes touched a record high of Rs 20.37 billion compared to Rs.16.68 billion in the corresponding period of the previous year.
- There has been an appreciable increase in the new mutual fund schemes launched in 1999-2000. In fact, several sector-specific schemes (those investing in information technology or fast moving consumer goods companies) were launched during the year.
Expectations from the Budget
- Given the present boom in the stock market and the successful performance of the mutual fund industry in 1999-2000, the industry may not have much to expect in Budget 2000.
- In fact, the mutual fund industry is concerned that the present tax-free dividend status in the hands of investors may be withdrawn.
- The Association of Mutual Fund Industry has previously suggested that the government permit the launch of individual retirement plans/pension schemes. The industry is hopeful that this will be done in the current Union Budget.
- The government is likely to permit the setting up of Real Estate Mutual Funds.
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Fiscal report card
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