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A `neutral-to-negative' exercise: MFs

Our Bureau

Kolkata , July 8

THE Union Budget will effectively discourage short-term punting in mutual funds, suggest asset management companies and distributors alike.

Most of them discount it as "neutral-to-negative", an exercise that will have little positive impact on funds.

Practically nothing has been done to canalise long-term savings into funds, observed Mr Dhiren Kumar, Head of Value Research, adding that the relative attractiveness of MFs may well decrease because of certain budgetary pronouncements. Tax on short-term capital gains, proposed to be levied at 10 per cent, may still be a dampener; so will be the decision to amend Section 94, aimed at ending bonus & dividend stripping, it is felt.

According to Mr N. Sethuram, CIO of SBI MF, a number of sectors could benefit from budgetary proposals, which should help fund managers who have already allocated to such sectors at the right time. These include telecom, agriculture and tractors. However, segments such as steel and banking are likely to be affected adversely, he said, adding that SBI MF has been lately paring its exposure to steel.

Mr Sanjay Prakash, Managing Director of HSBC MF, held that the proposal to completely do away with long-term capital gains tax on securities transactions will be good for the market. "This will encourage serious investors to save in a more disciplined manner," he said.

That equity funds will continue to be tax exempt is a decision that goes down well with Mr K.K. Mittal, CIO of Escorts MF. He, however, maintained that any possible impact on short-term investments will ultimately harm the interests of the market. "This will lead to a shrinking of the base," he stated.

For corporate investors in MFs, the Budget will not appear positive because of the 20 per cent tax proposal, noted Mr Sandeep Parwal, Director, SPA Capital, a distribution firm.

While the Finance Minister has described this as a partial closure of a window of arbitrage opportunity, companies will have to re-work their investment strategies in the days ahead, he felt.

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