March MF outflow at Rs 1.6 lakh cr: Crisil

India's mutual fund industry has witnessed a record outflow of funds worth Rs 1.6 lakh crore in March as banks withdrew their investments to meet loan demand in the market, credit rating agency Crisil has said.

These redemptions have now become typical of every financial quarter-end when mutual funds witness withdrawals by corporates and banks, Crisil Fund Services said.

"During the current quarter, banks' investments in mutual funds also came down as credit demand picked up with banks lending a record Rs 1.16 lakh crore in the last fortnight of March 2010," Crisil Director Krishnan Sitaraman said.

On a month-on-month basis, investment by banks in mutual funds reduced by 50 per cent to 56,000 crore at the end of March from Rs 1.09 lakh crore at February end.

Redemption from mutual fund schemes is common at the end of each quarter as corporates withdraw money to meet advance tax payment obligations, while banks withdraw funds to meet the capital adequacy requirement, it said.

"At the same time it is expected that a lot of these outflows should come back into mutual funds in April as has been witnessed in the past several quarters," Crisil said.

The country's mutual fund industry witnessed a nearly 5 per cent drop in the average assets under management (AUM) in February to Rs 7.44 lakh crore.

The industry's average AUM dropped by Rs 37,761 crore or 4.83 per cent during March. The combined average AUM of the total 37 fund houses stood at Rs 7,43,950.46 crore.