MFs opt for open-end route

MUMBAI, MAY 18: Mutual funds are increasingly taking the open-end route to take advantage of the tax concessions extended by the governme...

MUMBAI, MAY 18: Mutual funds are increasingly taking the open-end route to take advantage of the tax concessions extended by the government. Six mutual funds are planning to convert their existing schemes into open-ended schemes following the budget proposal of allowing tax exemption on income distributed by the open-ended mutual fund schemes.

8220;Canbank Mutual Fund had announced its plans to convert its Canbonus, Canexpo and Canpep 8217;93 schemes into open-ended schemes. GIC Mutual Fund is planning to convert its Balanced Fund into an open-ended fund. Alliance Mutual Fund has decided to convert Alliance Tax Relief8217;96, a tax-saving scheme into an opended scheme. Similarly, Reliance Asset Management has proposed to convert its scheme Reliance Growth Fund into an open-ended scheme three years before the redemption in October 2002,8221; said a study by Centre for Monitoring of Indian Economy CMIE.

The next three years would see dividends distributed by mutual funds particularly of the open-ended equity schemes with equity component more than 50 per cent of the corpus be tax-free in the hands of the investors. Moreover, the equity funds and US-64 will not pay 10 per cent withholding tax for the next three years. In other schemes which distribute dividends, no tax will be paid by the recipients, but a withholding tax of 10 per cent will be paid by the mutual funds and UTI.

After a gap of three years, PNB Mutual Fund is launching two open-end schemes. The new schemes will be christened as PNB Debt and PNB Balanced growth Fund. The minimum subscription in both the schemes has been kept at Rs 5,000. The open-end debt fund has an exit load of 0.4 per cent if the investment is withdrawn within 180 days. The AMC also plans to launch a money market mutual fund.

Alliance Mutual Fund is also planning to launch its first open-ended monthly income scheme christened as quot;Alliance Monthly Incomequot;. The scheme will offer three investment plans which includes monthly dividend, quarterly dividend and growth plan.

DSP Merrill Lynch AMC launched an open ended balance fund on May 3, 1999. The scheme aims to generate long term capital appreciation as well as current income from combination of investment in equity and debt instruments. The open ended balanced fund will be available on a no-load basis. However, a contingent defered sales charge CDSC will be levied on a period of holding of the units. The fund will charged a CDSC of two per cent, 1.5 per cent and one per cent to the investors opting of exist within one year, two years and three years respectively. There is no entry load.

During the month of April 1999, majority of mutual funds schemes outperformed BSE Sensex. When BSE Sensex fell by 11 per cent during April 1999, certain mutual fund schemes like Cantriple and Canstar Cap appreciated by 16.81 per cent and 18.90 per cent respectively. Similarly, Ind Prakash B gave 8.4 per cent returns during the month. In the case of other schemes, the decline in returns was much lower than the 12 per cent fall in BSE Sensex.