The Hindu Business Line : Select PSUs can now invest in equity mutual funds

Decks have been cleared for sizeable flow of public sector surplus funds into the capital market. Public sector blue-chip companies enjoying navratna and miniratna status can now park up to 30 per cent of their surplus funds in equity mutual funds. However, the investments would be allowed only in public sector mutual funds.

The Cabinet Committee on Economic Affairs (CCEA) on Thursday gave its nod for removing the prohibition on investment of surplus funds of navratnas and miniratnas in equity mutual funds.

“Navratna and miniratna companies will be allowed to invest 30 per cent of their surplus funds in public sector mutual funds. The permission is for one year and the decision would be reviewed on the basis of experience gained,” Mr Priyaranjan Dasmunshi, Information and Broadcasting Minister, told presspersons after the CCEA meeting.

Surplus funds

Currently, blue-chip PSU companies are parking their surplus funds in fixed deposits of nationalised banks, RBI bonds and treasury bills. Total surplus of central PSUs in 2005-06 was estimated at Rs 2,39,535 crore, according to public enterprises survey. Bulk of this surplus is accounted for by navratnas and miniratnas. There are currently 12 navratnas and 54 miniratnas.

Mr Dasmunshi also said that the approval would provide a level-playing field to these companies as regards the private sector entities, which can invest in mutual funds. It would provide flexibility to the navratnas and miniratnas to choose schemes based on relative performance of the mutual funds, he added.

He, however, highlighted that the investments would have to conform to the guidelines, procedures and management control systems for investment in mutual funds to be devised by the boards of public sector enterprises in consultation with their administrative ministries.

In May this year, the CCEA had referred the issue of allowing state-owned companies with surplus cash reserves to invest in mutual funds to a committee of secretaries.

Asked about an estimation of the likely flow of funds, a senior Finance Ministry official told Business Line that there is no one particular number as these vary in nature on a day-to-day basis. He pointed out that only investment of ‘surplus funds’ of the blue-chip PSEs had been permitted.

According to the official, six to seven mutual funds would come under the ambit of public sector mutual funds, including UTI Mutual Fund, SBI Mutual Fund, Canbank MF, LIC Mutual Fund and Bank of Baroda MF.

‘Discrimination’

Reacting to the Government decision, Mr A. P. Kurien, Chairman of the Association of Mutual Funds of India (AMFI), said that the industry had been seeking such a facility for quite some time.

“It is a good move on the part of the Government, but we did not expect this discrimination. We would request the Government not to restrict investments only to public sector mutual funds as all mutual funds are under the same regulations of SEBI. It is only the ownership of the asset management companies that are different,” he said.

There are 32 mutual funds offering variety of products and the restriction would restrict the choice of investors, he added.

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