Sebi's PSU push could add up to Rs 2.74 lakh cr to MF money

Only select PSUs can invest in MFs as per current rules

The Securities and Exchange Board of India’s (Sebi) proposal to the government asking all public sector companies to be allowed to invest in mutual funds (MFs) could potentially add up to Rs 2.74 lakh crore to MF assets. The calculation is based on the cash and bank balances of existing public sector companies, currently not allowed to invest in MFs.

“In case the base of the CPSEs (Central Public Sector Enterprises) is expanded and all the CPSEs are allowed to invest in MFs, such a provision would lead to a substantial inflow in MFs,” says the minutes of Sebi’s board meeting early this month.

The regulator noted the Public Enterprises Survey 2011-12 pegged the total cash and bank balance of these 257 companies at Rs 2.74 lakh crore as of March 31, 2012. The figures of the Association of Mutual Funds in India peg the total assets under management (AUM) of the sector at Rs 9.03 lakh crore at the end of January.

PUBLIC PUSH FOR MFs

• Currently, only Navratna and Miniratna firms are allowed to invest in MFs
• These can only invest in public sector-backed MFs
• Sebi has proposed the govt allows all PSU firms to invest in MFS
• Regulator has also suggested the scope of investments be expanded to include private sector fund houses

Existing government norms only allow certain classes of public sector companies to make use of MFs. Even these are only allowed to invest in MFs backed by other public sector entities.

“Presently, only Navratna and Miniratna CPSEs are allowed to invest in MFs. Now, the government has also recognised a new category of CPSEs i.e. Maharatna. So, there is merit to increase the scope of PSUs that can investment their surplus fund in MFs. But it is more important to urge GoI to allow all the CPSEs to invest their surplus funds in MFs,” said the minutes of the board meeting.

 

The regulator has proposed that government guidelines be suitably amended to allow all public sector companies to invest in any MF of their choice, including private sector ones. All the CPSEs may be allowed to invest surplus fund in MFs,” said the proposal.

Experts expect most of the money to come into liquid funds if the move were to go through. Sundeep Sikka, chief executive officer (CEO) of Reliance Capital Asset Management, said any allocation towards MFs would help companies which hitherto only invested in bank deposits.

“Public sector companies don’t earn anything on their current accounts. If they invest the same money in liquid funds for cash management purposes, the returns will be significant,” he said.

Akshay Gupta, managing director & CEO of Peerless Funds Management Company, said the incremental inflows were likely to be significantly lower than the cash they actually have. “The bulk of the cash is currently being deployed into fixed deposits of public sector banks… some of this could now find its way into MFs. I would expect the incremental inflows to be Rs 30,000 crore; largely into liquid funds,” he said.