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Expecting a fall in interest rates, Reliance Industries (RIL) has made a big shift towards debt mutual funds and long-term bank deposits in 2012-13.
Its latest annual report shows that the company’s war-chest of cash and liquid investments stood at Rs 82,975 crore by March 31, 2013. This was up by around Rs 12,700 crore, or 18 per cent, over the last year. RIL’s cash coffer is the largest among the private sector.
First, RIL locked Rs 10,000 crore more into bank term deposits. Its deposits, by March 2013, stood at Rs 48,792 crore. Within this segment, RIL doubled the money held in deposits with a maturity of more than one year, parking Rs 13,173 crore in them. With rates beginning to dip, RIL probably reckons that it is best to lock into high rates while the going is good.
Then, it also shifted Rs 12,000 crore more out of its short-term surpluses into debt mutual funds. From just around Rs 1,000 crore in end-March 2012, the company’s investment in debt mutual funds shot up to over Rs 13,000 crore by March 2013.
Bond funds
As interest rates fall, debt mutual funds usually make better returns because of bond price gains. They also offer liquidity on-tap.
Within debt funds, RIL preferred dynamic bond funds that actively switch between bonds of different maturities, and short-term funds. Some of its larger bets are on Birla Sun Life Dynamic Bond Fund, SBI Dynamic Bond Fund, and DSP BR Strategic Bond Fund. Over the last one year, such funds have, on average, gained 11 per cent.
RIL’s increased investments in government securities (Rs 1,184 crore as on March 2013 from just Rs 5 crore a year ago) also seem to be part of the same strategy.
The company has also allocated around Rs 3,200 crore more in fixed maturity plans and an additional Rs 1,900 crore in debentures and bonds.
On the other hand, as banks reduced interest rates on them, RIL completely exited from its investments of Rs 15,720 crore in bank certificates of deposit.
The company has also tried to make its money work harder. So, just around Rs 750 crore idled as of March 2013 (Rs 740 crore in other bank accounts and Rs 15 crore in cash). This was lower than the Rs 890 crore in other bank accounts and cash balances as of March 2012.
RIL also seems to have churned these investments quite actively during the year, booking Rs 1,234 crore of profits from its short-term investments in 2012-13, up from Rs 1,060 crore last year.
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