The heavy redemption in debt schemes of mutual funds (MFs) in September should get reversed soon and MFs are expected to get back the entire outflow in the current month. Historical evidence suggests that debt funds face redemption pressure at the end of every quarter. This pressure is considerably higher at the end of the first as well as the second half of the financial year.
For example, MFs witnessed a net outflow of Rs 98,980 crore in March 2009 in debt schemes. In the following month, April, inflows were Rs 154,507 crore. A similar trend was seen at the end of all quarters, except in September 2008, when the redemption pressure on debt funds continued in October.
According to Sundeep Sikka, chief executive officer, Reliance MF, corporate houses withdrew a lot of money last month to meet advance tax liabilities, something they do at the end of every half year. A part of the money withdrawn is invested in other debt schemes and so money doesn’t flow out completely.
Banks invested Rs 180,000 crore in MFs between April and September. They withdrew a part of this last month to show profits in their books, which caused a lot of redemption pressure. However, a considerable part of this was reinvested in the first week of October, said Surajit Misra, national head (mutual funds), Bajaj Capital.
September 2008 was exceptionally bad for the MF industry as the entire financial sector faced redemption pressure after four US banks filed for bankruptcy. Indian banks faced cash withdrawals from account holders while the corporate sector faced a liquidity crunch. As a result, banks and the corporate sector withdrew money to remain liquid.
With MFs floating time-bound fixed maturity plans (FMPs) to attract investments from the corporate sector and banks, the maturity of such schemes also increases outflows. For example, data compiled by MutualFundsIndia.com show that in September 2009, FMPs worth Rs 11,648 crore went under compulsory redemption.
Companies also periodically withdraw large amounts to show cash in their balance sheets and for future investments. It was a normal trend and there was no need for investors to panic as there was ample liquidity with the industry, said Lakshmi Iyer head (fixed income and Products), Kotak Mutual Fund.
According to Sundeep Sikka, chief executive officer, Reliance MF, corporate houses withdrew a lot of money last month to meet advance tax liabilities, something they do at the end of every half year. A part of the money withdrawn is invested in other debt schemes and so money doesn’t flow out completely.
Banks invested Rs 180,000 crore in MFs between April and September. They withdrew a part of this last month to show profits in their books, which caused a lot of redemption pressure. However, a considerable part of this was reinvested in the first week of October, said Surajit Misra, national head (mutual funds), Bajaj Capital.
September 2008 was exceptionally bad for the MF industry as the entire financial sector faced redemption pressure after four US banks filed for bankruptcy. Indian banks faced cash withdrawals from account holders while the corporate sector faced a liquidity crunch. As a result, banks and the corporate sector withdrew money to remain liquid.
With MFs floating time-bound fixed maturity plans (FMPs) to attract investments from the corporate sector and banks, the maturity of such schemes also increases outflows. For example, data compiled by MutualFundsIndia.com show that in September 2009, FMPs worth Rs 11,648 crore went under compulsory redemption.
Companies also periodically withdraw large amounts to show cash in their balance sheets and for future investments. It was a normal trend and there was no need for investors to panic as there was ample liquidity with the industry, said Lakshmi Iyer head (fixed income and Products), Kotak Mutual Fund.
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