MFs To Meet Amfi Over Sebi Deposit Norms

In view of the Securities and Exchange Board of India’s norms on investments in short-term deposits, mutual fund managers are likely to approach the Association of Mutual Funds in India (Amfi) on Monday to examine issues such as re-balancing of portfolio and its impact on returns and investors.
According to industry sources, fund managers had an informal interaction to discuss Sebi norms on deposits.

On 16 April 2007, the market regulator said mutual funds cannot deploy more than 15% of their corpus in short-term deposits of banks, which can be extended up to 20% with a prior approval from the respective board of trustees of mutual funds. Further, the Sebi defined short-term deposits as those with tenure of 91 days.

Also, Sebi said existing schemes are required to comply with this norm within a period of three months.

Amidst rising rate scenario, mutual funds floated a slew of quarterly FMPs in March 2007, offering 11-11.75% annualised return. Along with quarterly FMPs, a slew of 13-month FMPs were also floated which offer double indexation benefits to investors, giving them the advantage of indexing investments to inflation for two years while remaining invested for slightly over one year.

As per Amfi data, 95 new fixed-term plans garnered Rs 29,232 crore during March 2007.

In case fund managers choose to wind up deposits, it would adversely impact the returns which were offered to investors while floating FMPs.

There are a few fund houses such as Tata Mutual, Standard Chartered Mutual, Sundaram BNP Paribas Mutual, DBS Chola Mutual which do not see any problem as they do not have deposits over 91-day tenure in their portfolios. But some representatives of fund houses desired clarity on re-balancing portfolio in case the deposit is over 91 days.