The sweetener in mutual funds is gone, but the cake remains

Suraj Kaeley, Vice President-Sales & Marketing, Templeton Mutual Fund

"The budget has made the dividend income from mutual funds, taxable in the hands of the investors. This has been bit of a dampener. The sweetener has gone but the cake is still there. With the overall interest rates of other investments coming down, mutual funds will continue to be one of the key investment avenues.

The further changes that will take place in the UTI Act will bring UTI under all those guidelines, which are presently applicable to other mutual funds. This is a good step, as there cannot be different rules for different players. The finance minister is moving step-by-step in this area.

It has been a good decision to allow Indian mutual funds to invest in rated securities of countries with fully convertible currencies. This is a good opportunity as you are able to diversify globally. Along with foreign debt securities, investment in foreign equity is also a good option.

The rate cuts in small savings by 0.5% do not affect the mutual funds and markets significantly. I can say that it is a fairly stable tax regime. Bond markets have rallied in the past on expectations of rate cuts. Now they will see some correction. We believe that liquidity and the soft interest rates will remain. I also see a shift of investors from small savings to mutual funds. The investors will definitely realise that mutual funds are the right place as far as the management of risk is concerned.

Worldwide, stock exchanges have been self-regulatory. I am quite bullish on the corporatisation decision announced for stock markets in India. This is a right step in the direction of the next generation reforms in the markets. The changes to take place in the Sebi Act 1992 should cover an entire gamut of important issues. The stock markets have changed a lot in the past 10 years with new aspects like derivatives and depositories coming in.

Removal of APM will be as per schedule. This is good news as everywhere any industry works on the supply-demand function and only then the true prices are reflected. Due to the controlled regime previously, one could not get benefit of low crude prices, whenever that happened in the world markets.

It is a bit early to comment about which sectors will benefit from the budget. But cement and steel look positive now. Infrastructure (like power) is the key to bring competitiveness to the domestic players. Infrastructure development has to take place along with things like rationalisation of custom duties. What one has to see is when do these things happen in the next 2 years?"

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