Certain Budget proposals warrant a relook by FM

A central theme of Union Budget 2013-14 is to strengthen the financial sector and incentivise retail savings. The Budget speech had positive announcements regarding banks, insurance companies and mutual funds. It talks of streamlining investments by QFIs, FIIs and other portfolio investors. A very important action point is on deepening of debt market by introducing a dedicated debt market segment in the stock exchange and increasing the number of participants.

The pronouncements are very relevant and timely, particularly at a time when the savings rate has gone down by around 6% as mentioned by the finance minister and when long-term capital flows have been hard to come by.

The major measures envisaged for the mutual fund industry are the much-awaited streamlining of the Rajiv Gandhi Equity Savings Scheme (RGESS), rationalisation of the securities transaction, clarity on tax on securitisation transaction and bringing infrastructure debt funds (IDFs) of the mutual funds on a par in tax treatment with the IDFs to be set up by NBFCs. In addition to the aforesaid announcements, pension funds and provident fund trusts have been permitted to invest in debt schemes of mutual funds. An unexpected development have been the hiking of dividend distribution tax (DDT) on debt schemes of mutual funds to 25% from the current level of 12.5% for retail investors (the rates for non individual investors remain unchanged at 30%).

The proposed rate now brings the DDT on a par for all debt schemes of mutual funds — overnight, short term, medium term

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