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Our Bureau

Mumbai, Oct. 16 Redemption-hit mutual funds are gearing up to face testing times and accessing funds from the liquidity window recently provided by the RBI.

According to the data on the RBI Web site, Rs 5,970 crore has been borrowed so far by banks through the special repo window provided by the RBI for eventual use by mutual funds.

Redemption pressure is heavy across fund houses, said a chief investment officer at a mutual fund.

While some industry officials felt that all fund houses are equally affected in this situation, whether they are big or small in asset size, another group is of the view that fund houses with smaller asset bases will find it increasingly difficult to manage redemption pressures in the coming days.

However, fund houses, large or small, which do not have many fixed maturity plans (FMPs) or other fixed income schemes would not be affected much, they said.

While the bigger mutual fund houses have been borrowing from the banks through the liquidity window, some of the smaller ones have had to resort to special measures such as capping daily redemptions in select schemes, in addition to borrowing from the banks.

“Currently, redemptions are 10 per cent above the normal trend, but we are managing very well with the help of the liquidity window provided by the RBI, through which we have got Rs 600 crore. The rest we have got from our internal funds,” said Mr Vikrant Gugnani, CEO, Reliance Mutual Fund.

The larger proportion of the liquidity facility provided by the RBI is being accessed by the larger fund houses, said an industry official.

ABN Amro Mutual Fund is among the first one to announce a cap on redemption on its long-term FMP schemes.

So far under the window provided by the RBI, the mutual fund house has borrowed Rs 300 crore, said Mr Nikhil Johri, Managing Director of ABN Amro.

“This cap on redemption is applicable to long-term FMPs beyond one year’s maturity and this measure has been undertaken by the trustees in the interest of the investor who will remain invested till maturity of the plan,” said Mr Johri.

“It was decided, as per the provisions stated in the offer document, to limit the redemption to 5 per cent of the size of these schemes per day, with a further limit of Rs 1 lakh per investor, per day,” said Mr Johri.

In the current market situation it becomes difficult to sell these securities at reasonable prices, said Mr Johri.

Mirae Asset Management Company, which has a large number of liquid schemes, is also under redemption pressure, said sources.

Officials from the fund house said that so far they have met all redemption requests.

In the case of fund houses which have larger exposure to real estate investments, it is rather difficult to liquidate those investments, said the head of research of a mutual fund house.

More Stories on : Mutual Funds | Financial Markets

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