Finance Minister Arun Jaitley on Thursday proposed a 10% Dividend Distribution tax (DDT) on dividend options of equity funds to bring them on par with the growth schemes.
"I also propose to introduce a tax on distributed income by equity oriented mutual fund at the rate of 10%. This will provide level playing field across 30 growth oriented funds and dividend distributing funds, FM Jaitley said in his Budget speech.
The move is likely to hit investor sentiment as domestic mutual funds had pumped in a staggering over Rs 1 lakh crore in the stock market last year, much higher than over Rs 48,000 crore infused in 2016 and more than Rs 70,000 crore in during 2015. In fact, the investment by mutual funds in equities has outshone those by foreign portfolio investors (FPIs) in past few years.
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"Sentiments may get impacted as mutual funds have been gaining traction among investors as route to invest in stock markets," HDFC AMC Chairman Deepak Parkeh said.