Liquidity crunch hits some funds: Amfi

Withdrawal of money by banks from liquid and liquid plus schemes of mutual funds has led to the erosion in the average assets under management (AUM) of some funds, indicates early data from the Association of Mutual funds of India (Amfi).

According to the data, fund houses such as Reliance mutual fund (Rs 86,494.45 crore), AIG mutual fund (Rs 3,025.68 crore), JP Morgan mutual fund (Rs 2,400 crore), Lotus India (Rs 7,937.06 crore), Mirae Asset (Rs 2,309. 82 crore) and SBI mutual fund (Rs 29,248 crore) have seen a fall in their average AUMs even as bank money went out of liquid funds because of severe liquidity crunch in the market. Banks often park surplus funds in liquid or liquid plus schemes to earn extra return and yet retain liquidity of their funds.

However, other funds such as ABN AMRO mutual fund (Rs 8,965. 81 crore), Franklin Templeton mutual fund (Rs 28,356 crore), Fidelity mutual fund (Rs 7,679.85 crore) and Canara-Robeco mutual fund (Rs 6,006.25 crore) saw an increase in their average AUMs.

Fixed income fund managers point out that tightening domestic liquidity is primarily a result of advance tax outflows as well as forex intervention. The Reserve Bank of India (RBI) has hiked the reserves requirement or cash reserve ratio – a portion of bank deposits that needs to be mandatorily parked with the regulator — and benchmark repo rates in order to contain money supply growth.

Inflows in equity funds have also reduced to a trickle as events in global markets over the last few weeks have taken their toll on investor sentiment. “There is no significant redemption that we are seeing yet. Money continues to flow into fixed maturity plans (FMPs), though corporates are going a bit slow on investing in them,” said Sridhar K, head, distribution, Karvy Stockbroking.

“We have not seen any major changes in redemption trends this year. This indicates that Indian investors, who benefited from the strong equity market rally for the past few years, remain convinced about the long-term economic growth story and return potential of equities,” said Sukumar Rajah, chief investment officer, equity, at Franklin Templeton Investments.