The Hindu Business Line : SEBI fiat: Fixed maturity plans, liquid, floating funds may have to act fast

Kolkata April 17 The recent SEBI circular on exposure to short term bank deposits by mutual funds will require the asset management industry to rationalise its investments in such deposits, a measure that not all concerned can take immediately.

While there are no definite indications as to how much is exactly at stake, it is believed that liquid funds, floating rate funds and fixed maturity plans will be immediately impacted by the move initiated by the regulator.

At the heart of the matter is SEBI's definition of `short term' for parking of funds, `short term' will relate to a period not more than 91 days. Such a period, notes Mr A.P. Kurian, Chairman of Association of Mutual Funds in India, may be a bit short for a section of the industry, especially players, which are into longer term deposits.

List of funds

"We will have to see how the rationalisation can be done. Those who are into four- or five-month deposits may find it (the 91-day period) quite short," he said.

The list of funds — this includes a large number of FMPs — with considerable allocation to bank deposits is long, it is pointed out. Featured in it, and cutting across the mutual funds industry, is a range of floaters and liquid funds as well.

In many cases, such exposure is well over 50 per cent. According to figures released by Value Research, some of the funds in this league are DBS Chola Freedom Income Short Term (90.87 per cent), Magnum Gilt Long Term (81.6 per cent), ICICI Prudential Floating Rate Fund A (76.21 per cent), ICICI Prudential Sweep Plan (75.59 per cent) and UTI FMP Quarterly February 07 Series 1 (63.99 per cent).

At the other side, but still with more than the mandated exposure, are funds like HDFC Cash Management Call (15.33 per cent), ICICI Prudential Blended Plan A (16.78 per cent) and ABN AMRO Flexi Debt Regular (16.97 per cent). These figures pertain to March 31, 2007.

SEBI guidelines

It is not sure at this stage as to how the funds concerned will align their portfolios in line with the latest SEBI guidelines. The regulator has said no fund can park over 15 per cent of its net assets in short term deposits of all banks put together. Further, no fund can invest over 10 per cent in such deposits with any one bank, including subsidiaries.

Mr Sameer Kamdar, National Head - MFs, Mata Secutrities, feels the SEBI edict will have an impact on short-term products.

"The funds industry will have to regularise its investments in deposits. However, the move is welcome," he maintained.

The funds industry is also referring to what some feel is an important component of the guidelines — the bar on the asset management industry on charging investment management fees for placing funds in deposits. SEBI has particularly mentioned "liquid and debt oriented schemes" in this context.

Mr Brijesh Dalmia, CFP, noted in this context that the guidelines are in the right spirit and will be appreciated by unit holders whose money is invested in short term funds.

"Lay investors in particular need to remain assured that their money is allocated in the right manner," he added.

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