FE Editorial : Have money, will talk

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The Financial Express: Nov 17 2008, 22:53 IST

Sebi's recent decision to introduce lock-in periods for mutual funds’ fixed-maturity plans (FMPs) was in response to redemption pressures from corporate houses and rich individual investors. There was an emergency, to be sure. In October alone, income and debt related funds saw Rs 52,820 crore in redemptions. Compare this to Rs 706 crore of outflow from equity funds. In normal circumstances, a new fund’s inflow balances out redemptions. But of course normal conditions haven’t been applying. Inflows have been scarce. Plus, there were investors’ fears that the global credit crisis could lead to de-rating of domestic debt instruments, where fund houses have big exposure. It is important to recognise that this fear is without much substance. A Crisil study last month found that in 400 out of 800 FMPs for which portfolio data is available, about 85% of the schemes are invested in AAA and P1+ rated instruments and government securities. This is clearly an indication of good credit quality. Funds are to blame partially for engendering the fear. They do not disclose details of their portfolio. A complete disclosure of investment portfolio on a monthly basis is standard practice with open-ended funds. If FMPs follow this, investors will feel a lot more confident. At all times and especially at times like these, investors need to know the quality of underlying investments.

More needs to be done. FMPs should be treated like any other exchange-traded fund and if an investor is willing to exit the fund, he/she should be able to

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