RBI directive to banks to cap their investments in liquid MF schemes will help reduce volatility in the debt fund flows
The recent Reserve Bank of India (RBI) directive to banks to cap their investments in liquid mutual fund schemes at 10% is positive for the asset management industry, as it can help fund mangers make better decisions, feels leading rating agency Crisil.
The directive would reduce volatility in the market as it will help fund managers make more prudent investment decisions since they are sure of the investible corpus, Crisil director, capital markets, Tarun Bhatia said.
"Crisil Fund Services believes that this (RBI directive to banks to cap their investments in liquid MF schemes) will help reduce volatility in the debt fund flows," Bhatia said.
Banks normally park their surplus funds in liquid MF schemes and redeem them when credit offtake is good or to meet their advance tax outflows.
In the 3rd May annual monetary policy, RBI had said, "investment in liquid schemes of debt-oriented mutual funds (DoMFs) by banks will be subject to a prudential cap of 10% of their networth as on 31st March of the previous year".
The directive was issued as RBI fears that the circular movement of the same fund between banks and MoMFs can potentially lead to systemic risks.
The RBI also said liquid schemes continue to rely heavily on institutional investors such as commercial banks for investment. In turn, DoMFs invest heavily in certificates of deposit of banks.
"Such circular flow of funds between banks and the DoMFs could lead to systemic risk in times of stress/liquidity crunch. Thus, banks could potentially face a large liquidity risk. It is, therefore, felt prudent to place certain limits on banks' investments in MFs," RBI had said.
As of May 2011, total assets under management (AUM) stood at Rs7.31 lakh crore, out of which the liquid schemes stood at Rs1.83 lakh crore, as per the Association of Mutual Funds in India data.
Crisil envisages a significant reduction in the AUMs with banks withdrawing the surplus amount from these schemes in a phased manner.
According to Bhatia, as per the new RBI guidelines, banks' exposure to the MF industry should come down to around Rs30,000 crore from the current Rs1.3 lakh crore, by this October. As of May, the banks' exposure in DoMFs stood Rs1.3 lakh crore.
LIC Nomura Mutual Fund new issue closes on 28th June
LIC Nomura Mutual Fund has launched LIC Nomura MF Fixed Maturity Plan Series 46, a close-ended income scheme.
The investment objective of the scheme is to minimise interest rate risk by investing in a portfolio of fixed income securities which mature on or before the date of the maturity of the scheme.
The new issue closes on 28th June. The minimum investment amount is Rs10,000.
CRISIL Liquid Fund Index is the benchmark index. YD Prasanna is the fund manager.
HDFC Mutual Fund new issue closes on 28th June
HDFC Mutual Fund has launched HDFC FMP 92D June 2011 (3), a close-ended income scheme.
The investment objective of the scheme is to generate income through investments in debt/money market instruments and government securities maturing on or before the maturity date of the respective plan(s). The tenure of the scheme is 92 days.
The new issue closes on 28th June. The minimum investment amount is Rs5,000.
Crisil Short Term Bond Fund Index is the benchmark index. Bharat Pareek and Miten Lathia (for overseas investments) are the fund managers.