Liquidity crunch’s for real, MFs put cap on redemption

THE liquidity crunch in money markets is exacting a heavy toll on some small fund houses that have been hit by massive redemption pressures. ABN Amro MF has now put a cap on redemption on its long-term FMP schemes. All investors in these schemes can redeem only Rs 1 lakh per folio per day. 
“As a short-term measure, the trustees of the mutual fund, in order to safeguard the interest of the investors who want to remain invested till the maturity of the long-term FMPs, today have decided to limit the redemption to 5% of the size of these schemes per day, with a further limit of Rs 1 lakh per investor, per day,” said ABN Amro India-AMC managing director Nikhil Johri. 
What is making matters worse for ABN Amro is that its schemes are in the no-load period for a month, due to the recent change in management control. This makes it all the more easy for investors to pull out their funds. 
In the offer document (OD), mutual fund houses mention that the trustees can under unforeseen market circumstances limit redemptions temporarily. According to industry players, trustees of many mutual funds have instructed distributors that redemptions for all fixed income schemes should be paid only within 10 days from the date of redemptions. 
Another fund that appears to be under stress, according to market sources, is Edelweiss Mutual. The fund has seen the asset size of its maiden liquid scheme launched last month, shrink from Rs 730 crore to nearly Rs 230 crore. 
Mirae Asset Management Company, a fund into its second year of operations in India, failed to report the net asset values (NAV) of its two liquid schemes — Mirae Asset Liquid Fund & Mirae Asset Liquid Plus Fund — on October 14. The company refused to comment on the development 
Due to tightness in the money market, the AMC may have found it difficult to sell securities to raise the required amount. Unable to settle accounts at the end of the day, the AMC would not have reported the NAVs of the two schemes. 
Experts say in extreme situations, certain securities like government bonds or corporate debt papers may become illiquid. A fund house may not be able to sell securities immediately, and so, cannot raise money to return to investors in the case of higher than usual redemption requests. 
As on 30 September, Mirae’s assets stood at about Rs 2,309.8 crore. Of which close to Rs 1,864 crore is in liquid and liquid plus funds. Sources say the size of these assets have plunged in the past 10 days, and the fund is now unable to meet redemption requests. The AMC, however, has reported NAVs of both the schemes for October 15.

MFs hold on till realty debt do ’em part

LICMF, Can Robeco, Reliance Mutual & DSPML Reveal Big Holdings In Realty Debt Paper

AT A time when investing in realty and real estate-related instruments is considered a taboo, a few fund houses — having debt portfolios — are seen holding on to their investments in debt securities issued by real estate companies. Fund houses like LIC Mutual Fund, Canara Robeco Mutual, Reliance Mutual and DSP ML reveal substantial holdings in the real estate sector at the end of September. As per mutual fund tracker MFI Explorer, the liquid and liquid-plus funds of LIC Mutual Fund hold 19% and 65%, respectively, on each portfolios in real estate debt papers. LIC’s floater fund holds nearly 71% investments in papers issued by real estate companies. The Canara Robeco floater has nearly 46% in real estate debt securities. 
  Likewise, the liquid plan of ICICI Prudential owns nearly 3% in unrated papers issued by real estate companies. Around 17% of net investments made by DSP ML Liquid-Plus Fund is in real estate debt — a portion (4.4%), of which is in unrated papers issued by real estate companies. The liquid and liquid-plus funds of Reliance Mutual Fund holds over 6% each in papers issued by real estate companies. “We are not holding a lot many unrated papers; if you consider our entire debt portfolio, only 2 to 3% of the pool will be in unrated securities of sound companies,” said LIC Mutual Fund chief executive Sushobhan Sarker. 
  “It was a conscious decision on our part to invest in papers issued by real estate companies. These papers yield very high returns; moreover, we’re very comfortable with issuers of these papers. We’re very sure, these companies are strong enough to pay back the principal amount on time,” Mr Sarker added. He also said the sector would look up once the liquidity crunch in the system eases out. 
  Most fund houses had invested into real estate debt securities (including unrated ones) with a view to get higher returns from their investment. Papers with lower investment grade (or unrated ones) usually yield 200-300 bps more than the rated ones. With concerns over the credit quality of Indian companies looming large, investors, fearing a probable loss of capital in the event of default by companies, have been redeeming their investments from funds over the past one month. As per AMFI, there has been an outflow of Rs 26,665 crore (fresh investment not considered) from income funds in September. Redemption in debt funds have shot up 25% from the regular trendline, expert opine. 
  “At the end of September, we only have 1% of our fixed income portfolio in debt papers issued by real estate companies. The remaining 1.8% is in my real estate securities fund, where I have the mandate to invest in real estate. Over 90% of our investments are in highly-rated papers of good companies,” said ICICI Prudential Mutual Fund CIO Nilesh Shah. 
  According to Crisil Fund Services head Krishnan Sitaraman, investors need not really have apprehensions about their investments in various debt schemes. “Majority of the schemes have invested into good quality instruments and rated papers,” he added.