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Mar 06, 2013, 07.47 PM IST | Source: CNBC-TV18

Budget Analysis: MF units relieved on STT; shocked over debt funds DTT hike

The mutual fund sector has mixed feelings about Budget 2013. While some of them are happy with the liberalisation to the Rajiv Gandhi Equity Savings Scheme (RGESS), others are shocked with the move of hiking Dividend Distribution Tax (DDT) for debt funds. CNBC-TV18’s Mitra Joshi and Farah Bookwala report.

The mutual fund sector has mixed feelings about Budget 2013. While some of them are happy with the liberalisation to the Rajiv Gandhi Equity Savings Scheme (RGESS), others are shocked with the move of hiking dividend Distribution Tax (DDT) for debt funds. CNBC-TV18's Mitra Joshi and Farah Bookwala report.

Also read: Sebi board to meet on Mar 8 to discuss MF, debt mkt issues

Finance minister P Chidambaram has moved to attract more investments into mutual funds. In keeping with recent industry demands, the Budget tweaked the RGESS and hiked income limit from Rs 10 lakh to Rs 12 lakh. It also increased the investment limit from one year to three years, which means an investor can invest Rs 50,000 every year for three years, instead of the earlier once-only policy. While this has brought some cheer to the sector, some players say it is still not enough.

Commenting on the same, Debasish Mallick, MD and CEO, IDBI Mutual Fund said, it would have been in the fitness of things if this amount could have been raised beyond Rs 12 lakh to Rs 20-25 lakh at least.

However, the bigger shock for the sector came in the form of a hike in Dividend Distribution Tax for debt funds to 25 percent from the earlier 12.5 percent. Players say that this hike will undo all the forward movement achieved to attract investors away from fixed deposits.

Daiwa Mutual Fund's CEO, N Sethuraman said, the advantage which was earlier there for investment into debt funds, was the taxation component in terms of dividend distribution which was much lower. So the return which the investor got in his hands was tax-free, was significantly higher than what one could have got from a fixed deposit because there you have to pay big marginal tax rate.

Although Budget 2013 has provided some relief, in that it has cut Securities Transaction Tax (STT) on sale or purchase of MF units to 0.001 percent. But industry says this reduction should have been applicable on the STT paid by fund managers who make up a larger portion of the unit transactions than on retail traders.

There is one Budget proposal that is not being frowned upon. Allowing MF distributors to become members of stock exchanges, which will cut down on transaction costs for both distributors and asset management companies.

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