The Union Budget on Wednesday proposed that the mutual funds could play a bigger role in infrastructure development by launching and operating dedicated infrastructure funds, which would directly invest into core sector projects.

The Budget also proposed to raise the dividend distribution tax (DDT) on money market and liquid mutual funds to a uniform level of 25 per cent from the present 12.5 per cent for retail investors and 23 per cent for institutional investors, to restrict the arbitrage opportunities used by these schemes.

Industry executives welcomed these proposals with a note of caution and expected more clarification on these issues.

The government has also proposed to bring in asset management services run by individuals under the service tax net. This means portfolio managers, who provide investment fund management advisory services, will now face service tax.

These managers will now have to register with the Central Excise department and have to pay service tax, if their service fees is more than Rs 8 lakh per annum.

The proposal to launch dedicated infrastructure funds is likely to permit the fund houses to invest directly into infrastructure projects.

Asset management companies have already launched diversified as well as sector specific infrastructure funds. But these schemes invested through equities and were not permitted to invest directly into projects.

"It is tough to say how these funds would be. We have to wait for guidelines from the regulator. It's not clear whether the funds would be on the lines of Equity Linked Saving Schemes and attract some tax exemption along with a lock-in period. But it is definitely a good initiative," Ajay Bagga, CEO, Lotus Mutual Fund said.