FE Editorial : Bank for fund

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MFs investor base grow faster than AUM

: Of course, the sharp slide in stock markets was bound to create collateral damage in mutual funds. As on Tuesday, October 13, MFs had sold a net Rs 15.70 crore (month to date) as equity. This pales when compared with the Rs 6,982 crore withdrawal by foreign institutional investors in the same period. Also, interesting is the fact that when there could have been a crisis of confidence in the markets, the funds have invested a gross sum of Rs 4,858 crore from the beginning of October. These decisions, remember, have not been government directed as used to happen when institutions like the erstwhile UTI, LIC and other state-owned players were asked to shore up markets. MFs’ investments were driven by the logic of markets. When assessing RBI’s help to MFs, this should be remembered. Liquid mutual funds have a large exposure to pass-through certificates like commercial paper issued by companies and these papers are becoming sticky. This will be mitigated by RBI’s permission to banks to lend against such papers held by mutual funds. With market volatility, there were and will be redemption pressure on the funds. If the funds run into liquidity issues as a result, RBI intervention will help. One question being asked is whether the move will transfer risk from funds to banks. But given the essential solvency of the corporate sector in India, the papers are not risky per se. MFs have been a great vehicle for democratising stock markets in India. In a crisis atmosphere where all players seem to require help, RBI’s intervention in favour of them isn’t untoward.