By and large the domestic mutual fund industry seems satisfied with the provisions of the Union Budget 2002. Reduction in the dividend distribution tax on mutual funds was a major positive.

Distribution tax on dividends
For long, the mutual fund industry has been canvassing for a reduction in distribution tax on dividends of income funds. The Unit Trust of India (UTI) in particular was hit hard as it has the largest number of monthly income plans (MIPs) in the country. With the reduction in dividend tax, inflows in income funds will improve as dividend payouts will be more attractive. Of course investors in the growth option of income funds remain unaffected by the reduction in dividend tax.

Open-ended, Income Schemes	NAV(Rs)	Last week	Last month	Last year	Inception
PNB Debt Fund (Gr)	12.9	1.1%	3.3%	18.8%	16.1%
K Bond-Deposit (Gr)	11.7	1.1%	2.3%	11.0%	12.9%
K Bond Wholesale (Gr)	11.9	1.0%	2.3%	11.8%	13.8%
Zurich(I) High Int.(Gr)	16.0	0.9%	2.4%	11.3%	12.7%
DSP ML Bond (Gr)	15.9	0.8%	2.2%	11.0%	12.8%
Templeton Income (Gr)	16.7	0.7%	1.9%	11.3%	13.7%
Pru ICICI Income (Gr)	13.8	0.7%	1.8%	10.8%	12.8%
K P Inc. Builder (Gr)	15.9	0.6%	1.9%	12.3%	13.4%
Reliance Inc Fund (Gr)	14.5	0.6%	1.7%	10.8%	12.6%
LIC Bond Fund (Gr)	12.6	0.4%	1.5%	11.6%	13.8%

Dividend stripping
Another ‘loophole’ that has been taken care of is that of dividend stripping. With the new budgetary provision investors cannot claim capital loss if they exit from a fund within three months of entering it. Moreover they have to be with the fund for 3 months prior to the record date for distribution of dividend. So essentially the lock-in for 6 months - 3 months before the record date and 3 months after it.

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