With new valuation norms coming into effect from August 1, domestic fund houses are contemplating an exit load on early redemptions from liquid plus schemes.
The industry move is likely to shrink the corpus of liquid plus plans, which currently make up close to one-third of the industry’s asset under management (AUM).
The circular, released in February, was to be implemented on July 1, but was later postponed to August 1.
“The industry has started sending communications to clients, mainly corporate houses, regarding the exit load,” said the managing director of a foreign mid-sized mutual fund house.
Although there is no unanimity so far on the level of the load, fund houses say it will depend on individual players. The industry would charge between 0.25 per cent to 0.5 per cent, said chief executive officers (CEOs) of fund houses Business Standard spoke to.
“We have no other choice,” said a CEO. “This is nothing but a desperate measure the industry is taking to prevent outfows.
Implementing the load will help us in this unpredictable return scenario.” “Fund houses which have more than one liquid plus schemes are trying to re-position them,” said fund market insiders. However, fund houses fear that assets under liquid plus schemes will fall with this move. Corporate houses whose cash flow is predictable are likely to continue with these schemes while others are likely to shift to liquid or other short-term debt schemes, they say. Liquid plus schemes offer tax arbitrage. However, in liquid schemes, there were no tax incentives, said a chief investment officer of a mid-sized domestic fund house. Liquid plus schemes normally invest in securities of over 91 days whereas liquid funds invest in securities with tenures of less than 91 days.
Source: http://www.business-standard.com/india/news/mfs-mull-exit-loadliquid-plus-schemes/400815/
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