The banks' decision to reduce interest rates would add to the shift from fixed deposits to mutual funds, especially to debt products, Mr Kurian said adding that deposit base of mutual funds was expected to grow by around 30 per cent in the year to March 31, 2001, over the same period of the previous year.

Speaking to The Financial Express, he said the mutual fund industry should see a 40 to 45 per cent growth. The industry had mobilised around Rs 60,000 crore in fiscal 1999-2000, and Rs 70,000 crore during the first ten months to January 31, 2001. It expects to close fiscal 2000-01 with collections close to Rs 80,000 crore."Already there is a shift in the bank deposits even in the current fiscal.

Given the budget proposals, the shift will become more pronounced ", he opined.

He reasoned that the cut in fixed deposit rates would hurt the fixed income group and salaried class. And this came after the budget proposed to tax interest income of over Rs 2,500 a year against Rs 10,000 earlier.

In addition to this, the proposal to lower the exemption level under Section 80L of the Income Tax Act in case of interest income will have an adverse impact on the growth of fixed deposits with the banks.

According to the proposal, interest income up to Rs 9,000 will be deductible, against the Rs 12,000 allowed earlier under Section 80L. This will mean that income-tax payers saving with banks will have another reason to switch to mutual funds.