Sbi Mutual Sees 19% Debenture Interest

SBI Mutual Fund expects corporates to offer 18-19 per cent interest on debentures in the coming months despite clear indications of a slide in the interest rates regime following the announcement of the monetary policy by the Reserve Bank of India.

The fund has struck to its decision to offer guaranteed return of 15 per cent in the first year to investors putting their money in its Magnum monthly income scheme (MMIS 97) which will be launched on April 17. It will announce a new rate in June next year.

SBI Mutual has decided to invest at least 80 per cent of the corpus in debt instruments and the remaining in the equity market. It expects to raise Rs 50 crore but will break even if an amount of Rs 20 crore is raised.

We will be able to service a rate of return of 15 per cent in the first year because we have informally tied up for the purchase of debentures at 18-19 per cent from different companies, M P Radhakrishan, managing director, SBI Mutual Fund, said.

The fund had decided on a 15 per cent rate even before the budget was laid in parliament and there were indications of a slide in interest rates.

P B Arora, deputy general manager, admitted that the possibility of a fall in interest rates will exert some amount of pressure on the fund.

Asked if its decision to invest only 20 per cent of the corpus in capital markets betrayed the fund's aversion to risks, Radhakrishnan said, The situation has not yet arisen where the principal amount invested in equities can be considered safe . We do not want to put the investment of our investors at risk by putting more money in the volatile stock market.

SBI Mutual is also restructuring the Magnum triple benefit plan which has a 40 per cent debt component. The debt component is now being increased to 80 per cent.

It is also planning a hybrid scheme under which the corpus will be invested in debt instruments for the first one or two years and later shifted to the capital market.