Mutual funds just have to grin and bear it

The finance minister said while equity-oriented mutual funds continue to be exempted from tax on dividends rate, tax on corporate unit holders of debt- oriented mutual funds would be raised to 20 per cent with no change for individuals and Hindu Undivided Family (HUF) unit holders.

However, fund managers remain confident that the debt corpus of MFs will not take a hit as corporates have little choice on investment vehicles — i.e. investments offering tax exemptions coupled with good returns.

Naval Bir Kumar, CEO, Standard Chartered Asset Management Company, the only fund house in the country catering to debt investors said: ‘‘It is a little too early to say whether corporate investors would pull out their investments from debt-oriented schemes. However, I think, chances of corporates switching to equities seem remote as their risk appetite essentially remains the same. Corporate investors would still prefer mutual funds over other fixed income vehicles even as debt schemes yeild lower returns’’.

SV Prasad, CEO, Birla Sun Life Asset Management Company (BSLAMC) said, ‘‘Chidambaram has made an attempt to chalk out a roadmap for retail investors to invest in mutual funds by reducing arbirtarge opprtunities for corporate investors. “

Nevertheless, he added, corporate investors would continue to invest in debt-oriented schemes as they are left with little choice among other fixed income vehicles. MFs would still continue to give corporates maximum tax benefits. However, there are operational issues that have to be sorted out right away.

Echoing similar views, Sanjay Prakash, CEO, HSBC AMC said, ‘‘The finance minister is trying to minimise arbitrage opportunities for corporate investors by increasing the rate of tax for corporates. Though, it is a negative development on the mutual fund front, I still think, corporate investors would prefer to remain invested in cash funds for the lack of other investment options.