The Hindu Business Line : A Rs 6,000-cr gap: SEBI data puzzles mutual fund managers

THERE seems to be a Rs 6,000-crore gap between what mutual funds have mobilised through their equity schemes and what they have invested in stock markets during the financial year 2004 -05.

Data compiled from the monthly publication of the Association of Mutual Funds in India indicates that fund houses' inflows into growth schemes, minus the redemptions, were a whopping Rs 6,454 crore. Compare this to SEBI's annual report, which says that mutual funds' net investments in the equity market for the same period was a mere Rs 448.02 crore.

This mystery of over Rs 6,000 crore seems to have several plausible explanations, but no certain one. One explanation offered by the heads of mutual funds is that with the markets galloping at the pace they are, fund managers are playing it safe and are keeping larger portions of the funds in cash and money market instruments. They seek entry points on days that the stock prices dip but are unwilling to commit larger portions in what is largely perceived as a market where valuations are stretched.

In the first four months of the current fiscal also, mutual fund heads have been cautious investors. Of the Rs 6,709-crore that they have raised, only Rs 3,493-crore have trickled into the market.

Heads of several fund houses seemed doubtful about the SEBI data. "My own fund house has invested close to Rs 150 crore between January and March 2005 and it is inconceivable that the other 29 fund houses have invested only Rs 300 crore during the whole fiscal," said the chief executive officer of a mutual fund house.

Though offer documents of equity funds usually have asset allocations that say that 65-85 per cent of the funds would be invested in equity assets, they also have overriding clauses that allow fund managers to fully remain in cash under extraordinary circumstances.

Even if the Rs 6,000 crore is attributed to the `extraordinary circumstances' of the current bull-run, there is no explanation for the gap of Rs 6,377 crore in the previous fiscal. Between April 2003 and March 2004, fund houses raised Rs 7,684 crore through their growth funds and invested a little over Rs 1,300 crore in the equity market.

Fund managers concede that there is a possibility that some block deals on stocks that are not routed through the exchanges are not being accounted by SEBI and thus, the difference between their figures and SEBI's. But even this cannot account for the Rs 6,000 crore, they say. Whether this is a reporting error on SEBI's part or a strategic decision to under-invest by mutual funds is anybody's guess. For now, the treasure hunt continues.

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