MFs upbeat, but tax doubts linger

There is still no clarity as to how much transaction tax a buyer or seller of a mutual fund unit has to pay since it is not traded on the exchange.

As of today, the buyer of an MF unit has to pay a transaction tax of 15 basis points as he enters a unit, apart from the entry load charged by the fund house. Similarly, he pays another 15 basis points besides the exit load charged by a fund house when he redeems a unit.

However, there is a sense of relief among industry players, now exempted from long-term capital gains. Also, balanced funds will be treated like the equity dedicated schemes as they typically have an equity allocation of over 50 per cent.

However, the MF industry, that had put dividend declaration on hold after the budgetary announcements on July 8, 2004,is also believed to be resuming dividend distribution shortly, as the Association Of Mutual Funds (amfi) in India gives final touches to guidelines on dividend distribution to individuals and non-individuals.

A.P. Kurian, chairman, AMFI, said: ‘‘The FM has been responsive to the needs of the market and has imposed an innovative tax structure fair to all players.

A.K. Sridhar, chief investment officer, UTI MF, said, ‘‘The FM has once again reiterated that MFs are a superior alternative investment vehicle.”

Marketspeak

Raamdeo Agarwal, Deputy MD, Motilal Oswal Securities
It’s a win-win situation for all… government, traders, and investors. Factors like monsoon, oil prices, corporate earnings, FII interest will influence the market now.

Krishnamurthy Vijayan, CEO, JM Mutual Fund
‘‘The equity market has taken this move very well. Of course, monsoons are a worrying factor; let’s wait and watch.’’

Naval Bir Kumar, MD, Stanchart MF
‘‘No surprises for the bond market… we are just happy that status quo has been maintained. We were expecting this, so I don’t think there will be any impact on the bond market.’’

Nimesh Kampani, chairman of JM Morgan Stanley
‘‘It’s a good development and the government has listened to the woes of investors. The markets have already gone up.’’