Amfi committee asks RBI to extend overdraft facility for income funds

Sujoy Manna

Mumbai, Oct 3: The Association of Mutual Funds in India’s (Amfi) committee on credit-policy has recommended to the Reserve Bank of India (RBI) that it extend the 25 per cent overdraft facility for income funds.

The suggestion forms part of the mutual fund (MF) industry suggestions to the RBI for the forthcoming credit policy to be announced on October 22, 2001.

According to sources, at present the 25 per cent overdraft facility is limited to gilt funds only. Since the income funds now have substantial investment in government securities, the MFs have suggested extending the facility to the entire portfolio of gilt funds. Moreover, the overdraft facility helps the MFs to borrow 25 per cent of their asset under management to meet redemption pressure.

The credit committee has also taken up various operational issues with the central bank that has a bearing on MFs.

The MF industry today is one of the major investors in debt instruments ranging from government securities, corporates bonds to debentures among others.

They are also an important player in the money market following the downturn in the stock market and consequent spill over effects on the equity funds. Therefore, with the extension of the overdraft facility to the income funds, the MF industry will be better placed to manage the redemption pressure and the funds as a whole.

Besides, retailing of government securities is one of the priority areas for the all money market players and the RBI in order to kickstart the secondary market trading in the government securities.

To this effect, sources added that the MFs, through their various gilt funds and income funds, can play an important role to encourage retailing of government securities, which otherwise has been confined to inter-bank market players.

The overdraft facility, therefore, can act as a major incentive
to MFs.

The MF industry has made net-investments of Rs 4,600.48 crore in the debt market during April-September 2001. They have made gross purchases of Rs 13,687.68 crore with sales at Rs 9,087.20 crore.
It may be mentioned that MFs have become members of Clearing Corporation of India Ltd (CCIL) and the Negotiated Dealing System-based on the recommendations of Amfi.