With the latest budgetary provisions, mutual fund (MFs) investors can no longer get capital gains relief under sections 54EA/EB with effect from April 1, 2000. MFs have realised this and are trying their best to woo high networth investors before the April 1 deadline.

Mutual funds are in a rush these days, thanks to Yashwant Sinha. Earlier investors with long-term capital gains could get relief under section 54EA/EB by investing in specified bonds/debentures, shares of a public limited company and units of a mutual fund. As per the latest provisions of the budget, tax benefit can be derived by investing only in NABARD (National Bank for Agricultural and Rural Development) and National Highway Authority of India (NHAI) bonds and not in bonds/debentures, shares and/or units of a mutual fund.

So MFs are doing the most logical thing now. They are approaching their high networth clients to invest in their schemes to claim capital gains tax relief before the April 1, 2000 deadline, after which sections 54EA/EB will be annulled.

The next 2-3 weeks could witness a huge marketing blitz from MFs highlighting the budgetary provisions and the impact on investors' capital gains. Investors could find it worth their while to invest in MFs which offer higher returns as compared to NABARD/NHAI bonds and this fact will also be highlighted by MFs in their zeal to attract higher inflows.

Both high and low networth investors will be better off parking their funds in MFs, as opposed to bonds. This could trigger off a large surge in inflows in MF schemes. Debt (income) schemes will benefit more from this than equity (growth) schemes as historically 54EA/EB component in debt schemes is close to 15% as against 2-3% in equity schemes.

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