Dividend Tax Removal Hopes Drive MFs To Defer Payouts

Mumbai, January 24: | Updated: Jan 25 2003, 05:30am hrs
With the Union budget for 2003-04 around the corner, mutual funds (MFs), especially equity-dedicated ones, are postponing dividend declaration on hopes that dividend tax may be abolished as per recommendations made by the Vijay Kelkar Committee.

The Unit Trust of India (UTI), for one, seems to be holding back from declaring dividends in some of its top-performing equity schemes, like the UTI Petro Fund and UTI Master Growth. In January and February 2002, UTI had unveiled dividends for the Petro Fund and Master Growth. However, till date, the MF behemoth has not declared any dividend for these schemes, despite their good performance.

However, Mr AK Sridhar, CIO, equities, at UTI, had a different opinion, We expect the market to go higher from its current levels and in line with this, we dont want to book profit at current levels and upset the scheme. Basically, our focus is not on tax concessions, but on the performance of a scheme. In the case of schemes like Petro and Master Growth, we see them doing well in the coming months. So, we do not want to book profit at current levels and distribute it in the form of dividend.

Templeton Asset Manage-ment (India) Pvt Ltds director (research) Chetan Saigal said the Budget is an important determinant to make a decision on dividend payment. The run-up from now on to the Budget is also very short.

Kotak Mahindra MFs chief marketing officer Prakash Dalal pointed out that if dividend tax is abolished in the forthcoming Union budget, it will be a big move as select unitholders who come under the higher tax bracket can save about 20 to 30 per cent. Normally, Kotak MF used to unveil dividend in December for equity schemes. But this time, we have not announced any dividend for these schemes till date on expectations of the market spiralling higher in the coming months, he said.

As far as debt schemes go, Mr Dalal said, We declare dividend in March. However, if the dividend tax is abolished in the Union budget and if it is implemented from April 1, we might postpone the dividend payment till that month. I think, even investors will appreciate it.

The Kelkar committee has recommended that dividend tax be abolished and corporate tax rates be cut.