MF assets cross Rs 1 lakh cr mark

Of late, private sector funds – like Prudential ICICI, Sun F&C, Kothari Pioneer, Birla Mutual Fund and DSP Merrill Lynch – have been expanding rapidly, giving the UTI a run for its money. The mobilisation has been rising sharply with the launch of infotech schemes by mutual funds. Private sector funds saw a net collection of Rs 9,064 crore, accounting for 75 per cent of the total net inflows into the mutual fund industry during the April-December period. Public sector mutual funds continue to bleed, while the UTI has held ground, thanks to the turnaround in its flagship scheme, US-64.

Out of the total corpus, income schemes account for a lion’s share of Rs 47,279 crore, followed by growth schemes at Rs 23,313 crore and balanced schemes Rs 24,029 crore. Total inflows as on January 31, 2000 amounted to Rs 27,595 crore while redemption was put at Rs 16,170 crore.

ICICI Securities (I-Sec) has forecast redemption pressure on mutual funds corpus due to the budget proposals to increase the tax rate on dividend and a tight liquidity position in March. "The budget proposals to increase the tax rate on dividends distributed by mutual funds would result in some redemption pressure on mutual funds corpus and may also lead to selling interest from funds," I-Sec said in its latest review of debt markets.

With the Union budget for the next fiscal raising withholding tax from 11 per cent to 22 per cent and withdrawing tax shield for re-investment of capital gains income, it would be cheaper for a corporate to invest on its own rather than through a mutual fund. "If exponential growth of debt funds during the current year was due to tax incentives for dividend schemes, the next fiscal could see net outflows, especially from corporate and bank investors, due to the hike in the dividend tax," it said adding if mutual funds turn net sellers owing to redemption pressure, corporate spreads are likely to widen.