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It was a dream budget for mutual funds. Mutual funds expect more inflow, particularly in
equity-linked savings scheme (ELSS), as the income-tax exemption limit has been raised to
Rs one lakh without any sectoral caps. Earlier, investors got a rebate of
Rs 10000 on investments in ELSS. Now, investors can take advantage of the bull market
and invest up to Rs 1 lakh and claim tax exemption.
ELSS has the lowest lock-in period of three-years compared to other tax
saving instruments such as PPF and NSC. This period allows investors to ignore the
short-term bumps and stay invested for the long catch. The lock-in also gives fund
managers the freedom to take sector and stock bets, which is absent in the regular equity
schemes.
Redemption will not attract tax as long-term capital gain tax was
abolished in the last budget. Interest on other small saving instruments will now be taxed
with the removal of sec 80L benefit. But dividends from ELSS (or any other mutual fund
scheme) are tax-free. The low entry level, with a minimum investment amount of just Rs
500, also makes ELSS the most sought-after saving instrument.
The budget has proposed Gold Exchange Traded Funds (GETFs), with gold
as the underlying asset, in order to enable investor to take an exposure to gold for as
little as Rs 100. The fund house will issue a limited number of units backed by an
equivalent value of gold held in bar or bullion form. The custodian, on behalf of the fund
house, will hold the gold in physical form. The value per share will be the total value of
gold held divided by the number of shares, less the trust’s expenses and liabilities.
GETF will be listed on stock exchanges to provide liquidity and appreciation.
Meanwhile, the bullish stock market has triggered a number of initial
public offers (IPOs) in the equity category from mutual fund houses. SBI Mutual Fund (MF)
joined the mid-cap bandwagon with the introduction of SBI Magnum Midcap Fund, while HDFC
MF launched HDFC Premier Multi-Cap Fund in the fortnight ended 4 March 2005.
Of the ten IPOs floated since January 2005, almost nine belonged to the
equity category. The rising popularity of equity IPOs can be gauged by their strong
collection. Franklin India Flexi Cap Fund, from the stable of Franklin Templeton
Investments, mopped up a colossal Rs 1900 crore — the largest collection by a mutual
fund IPO in a decade. Sundaram Mutual Fund’s SMILE (Small and Medium Indian Leading
Equities) raised Rs 367 crore, and Kotak Mahindra MF’s Kotak Mid-Cap mopped up a
record Rs 577 crore, making it the second-largest open-ended equity IPO collection ever.
In February 2005, mutual funds bought a net Rs 101.78 crore of
equities. The inflow in February, however, was much lower than the inflow of Rs 547.71
crore in January 2005. MFs have also remained net buyers (Rs 216.09 crore) of equities in
March 2005 (up to 4 March).
Three schemes of Canbank Mutual Fund—Canbonus, Canglobal and
Canpep95—were merged with Canequity diversified scheme. Canbonus, Canglobal were
open-ended growth schemes, while Canpep95 was a close-ended ELSS scheme.
The assets under management (AUM) of mutual funds witnessed a rise of
Rs 1107.95 crore, or 0.73%, in February 2005. The growth was due to a higher number of
IPOs, which mopped up around Rs 1500 crore to Rs 1700 crore. However, Birla MF raised Rs
1000 crore in January not through an IPO, but mainly through innovative systematic
investment plans.
Other big gainers in February included Sundaram MF and Kotak Mahindra
MF. However, large fund houses like Principal MF, Sahara MF, Prudential ICICI MF and SBI
MF saw a decline in their AUM.
Meanwhile, the hearing of the case filed in the Bombay High Court on (7
February) by Bajaj Auto has been postponed. The company had dragged UTI MF and market
regulator Sebi to court over the winding up of UTI Growth and Value Fund – Bonus
option on 31 January 2005, as the fund house had failed to comply with Sebi’s
regulation of a minimum 20 investors and no investor accounting for more than 25% of the
assets. Bajaj Auto contended that the premature closing of the UTI scheme would entail
payment of capital gains tax by the company. The scheme was originally known as IL&FS
Growth and Value Fund and was taken up by UTI when IL&FS decided to exit from the
business.
Earlier, Sebi had extended the deadline for mutual funds to implement
the 20-25 norm by one month to 31 January 2005. Many mutual fund houses including Chola
MF, Reliance MF and Standard Chartered MF have wound up many plans/schemes.
Even as US-based Alliance exited India, another giant joined the mutual fund family.
US-based fund management company Fidelity got the approval from Sebi to set up its MF
business in India. Fidelity’s fund operations are the world’s largest, with more
than US$1 trillion assets under management. Fidelity is likely to introduce its first
scheme in India in mid-March. The fund house has already filed an offer document with Sebi
to introduce Fidelity Equity Fund. |
