Indian fund houses have started answering to the queries sent by State Bank of India (SBI) on investment policies into debt funds. During the first half of October, SBI, which is largest lender of the country, sent a six-point questionnaire to around top 15 fund houses regarding their investment policies into fixed income securities.
According to senior officials in the mutual fund industry, many fund houses have already sent their answers, while a few of them will send in next few days.
“I think questions sent by SBI were very ordinary and reasonable in nature. But one question which surprised not only us, but also the entire industry was on seeking a compensation policy in case of a default,” said a person from a top fund house on condition of anonymity.
Officials in the industry said this latter was following the Rs 190-crore default by Amtek Auto which had hit investors in two schemes of JP Morgan Asset Management.
The letter sent by SBI to fund houses sought details on measures to deal with suspension of ratings, credit quality of papers and exposure of fund houses into single paper, among others. SBI invests approximately Rs 10,000 crore in debt funds with most of the money either into liquid funds or short-term funds.
“We can’t differentiate between retail investors and large corporates as we are regulated by the Securities & Exchange Board of India (Sebi). So the reply were on similar lines which are available in our offer documents. But answer to one question on the compensation policy was very clear that mutual funds are not a ‘guarantee’ products and its returns are market linked,” said the head of credit at a leading fund house.
Even people within the industry have categorically said investments into mutual funds are subject to market risks and investors need to be prepared to bear losses.
CVR Rajendran, CEO of Amfi, said: “We all know that mutual funds are just a pass through vehicle and there are very clear disclaimers. One can’t expect it to be a ‘guaranteed’ product as returns in mutual funds are market linked.”
Clearing the air
* SBI sent a six-point questionnaire to fund houses on their investment policies into fixed income securities
* Officials said the latter was following the Rs 190-crore default by Amtek Auto, badly hitting investors
* SBI invests around Rs 10,000 cr in debt funds with most of the money either into liquid funds or short-term funds