A 180-point spurt in the Sensex is a pointer to the positive reaction of the market to the sops announced for the mutual fund industry and the reduction in long-term capital gains tax to 10 per cent from 20 per cent.

The next three years will see dividends distributed by mutual funds, particularly those of open-ended equity schemes (with equity component more than 50 per cent of the corpus), tax-free in the hands of the investors.

Moreover, the equity funds and US-64 will not pay 10 per cent withholding tax for the next three years. In other schemes, which distribute dividends, no tax will be paid by the recipients, but a withholding tax of 10 per cent will be paid by the mutual funds and UTI. "The budget is exceedinglygood.

Tax incentives to the fund industry will really strengthen the industry and the gloom created due to the US-64 crisis will be dispelled with investors coming back in a more institutional way," said the Sebi chairman DR Mehta.

Delighted by the incentives given by the finance minister to US-64 and the mutual fund industry as a whole, the UTI chairman PS Subramanyam said: "The budget points at a definite growth path for UTI and the industry and the impact will be that investors will repose their faith in equity products.

Effectively, the minister has given a big boost to the capital markets through the mutual fund route."

Said the Sun F&C chief executive officer (mutual fund) Nikhil Khattau: "With mutual funds being made the main conduit to revive the capital markets, the minister has brought mutual funds on a par with good corporates. This move will see a lot of equity products by funds being launched and improve the state of the capital markets."

"US-64, which gives regular dividends and fiveother schemes of UTI with a corpus of more than Rs 3,000 crore will be more attractive than debt. This would mean a major impetus to capital markets also," said UTI executive director Basudeb Sen. "We will see a lot of equity products being launched and a large inflow of money into the capital markets this fiscal. The schemes will now become very tax efficient which will indirectly provide incentive to the capital markets," said Tata Mutual Fund managing director KN Atmaramani.