The Budget proposal to hike dividend distribution tax (DDT) on debt fund investments to 25% from 12.5% is likely to impact returns given by fixed-income schemes with a dividend component. The increase in rates is set to affect the arbitrage between post-tax returns in debt funds and fixed deposits (FDs). “The scope of arbitrage between FDs and short-term debt funds will be significantly reduced. While there won't be any exodus of money per se, investors might become more choosy and opt for FDs over debt investment as returns of debt products with dividend option will decline,” said Jimmy Patel, CEO, Quantum MF.

Source - http://www.financialexpress.com