The asset management company had recently announced a record date for the payment of dividend in Alliance '95. Had the fund paid a dividend for the year ending March 31, 1999, the income would have been taxed at the hands of the investors. The fund paid a dividend of 10 per cent last year.

Besides Alliance '95, the open-end balanced fund from JM Mutual Fund had paid a 9 per cent dividend last year. However, the fund is not in a position to give tax-free dividend to its investors, since it has only 38 per cent exposure to equities.

"In view of the budget proposals to make dividendsdeclared by open-ended equity schemes of mutual funds exempt from income tax, trustees of Alliance Capital Mutual Fund have decided that no dividend be declared for the year ending March 31, 1999. Any dividend for the said scheme shall be only declared after June 1, 1999, in order to enable unit-holders of Alliance '95 to benefit from the above mentioned tax exemption,'' says a communique from the AMC.

The record date announced for the March 31 payout stands cancelled and the AMC will announce a new record date as and when it plans to declare a dividend.

As on March 24, the dividend option of the balanced fund had a healthy NAV of Rs 26.45. Even though there are two months to go before the fund declares a dividend, medium-to-long term investors can enter the fund now to earn an attractive return. The fund is expected to pay a 20-25 per cent dividend, assuming the NAV stays at current levels in June.

Alliance '95 has an entry load of 2.25 per cent to prevent short-term investors from `dividendstripping'. With dividend income made tax-free, it will be a convenient route for investors to put a hefty sum in a fund, earn a tax-free dividend and exit the fund with a capital loss. The capital loss can then be adjusted against future capital gains.

As on March 1, 1999, Alliance '95 had a total corpus of Rs 102.72 crore. An aggressive balanced fund, Alliance '95 had a 74 per cent exposure to equities and 19 per cent investments in debt instruments with the rest in cash and money markets.