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Run-up to the Budget: Capital Markets
Budget 2000-2001 announcements
- Dividend tax on corporate dividends increased from 10% to 20%
- Dividend tax on debt MF schemes increased from 11% to 22%
- Equity schemes and US 64 continue to enjoy 0% tax till March 2002
- 1% reduction in interest rates on General Provident Fund
Outcome
Depressed capital markets imposition of higher distribution tax on Income Funds and removal of 54EA/EB schemes during the budget 2000-01 adversely impacted the overall mobilisation of the Mutual Funds. Income funds witnessed a fall in Net sales by around 64% during Apr-Dec 00 over the levels during Apr-Dec 99. Further there was a reallocation of mobilisations within the industry with the Net Sales of the Income Funds falling from being 66% of the total mobilisations to 42% during 2000 over the same period in 1999, while the Liquid funds registering an increase in net mobilisations as a percentage of industry from 12% to around 47% during the same period. Growth Funds on the other hand witnessed a net outflow during the period Apr-Dec 00.
Expectations from Budget 2001-02
Key objective: Strengthening the institutional framework and facilitating market development in order to promote channelising of higher levels of savings into the Capital markets.
Expectations:
|
Promotion
of
Mutual
Fund
Pension
Products
having
uniform
Tax
incentives
across
funds. |
Promotion
of
Pension
products
which
have
a
Tax
deferment
benefit
by
Mutual
Funds
could
result
in
considerable
inflows
into
the
industry.
Further
these
funds
could
serve
as
long-term
deployment
avenues
for
the
Mutual
Funds
that
could
in
turn
stimulate
some
inflows
into
the
infrastructure
projects. |
|
Re-introduction
of
54EA
/
EB
schemes
|
These
schemes
would
help
revive
interest
of
investors
seeking
Tax
benefits.
In
terms
of
ELSS
schemes,
the
limit
of
Rs.
10,000
should
be
brought
atleast
upto
the
levels
permitted
for
Infrastructure
sector
of
Rs.
20,000.
It
would
also
help
the
industry
in
mobilising
stable
funds,
which
could
find
long
term
deployment
into
the
capital
markets. |
|
Increased
investment
limits
in
ELSS
schemes |
|
Realignment
of
interest
rates
on
Small
Saving
Schemes
with
the
current
market
rates. |
Interest
on
Small
savings
schemes
such
as
Kisan
Vikas
Patra,
NSCs/
NSSs/
other
post
Office
schemes
needs
to
be
brought
at
current
interest
rate
levels
to
create
a
level
playing
field
for
various
investment
options,
also
easing
the
overall
interest
rate
scenario. |
|
Mutual
Fund
industry’s
participation
in
the
management
of
Pension
and
Provident
Funds |
Mutual
Fund
industry
could
attract
Significant
pension
/
provident
funds
backed
on
their
fund
management
expertise.
This
could
in
turn
deepen
the
secondary
debt
market. |
|
Tax
incentives
on
investments
in
G-Secs
for
retail
investor
and
permit
trading
in
STRIPS. |
Increased
popularity
of
G-Secs
with
the
retail
investors
thus
broadening
the
investor
base
and
deepening
the
secondary
debt
market. |
Disclaimer: CRISIL has taken due care and caution in compiling this report. Information has been obtained by CRISIL from sources which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of its web site.
Rediff-CRISIL Budget Impact Analysis
Budget 2001
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