Companies have pulled out Rs 1.44 lakh crore from the mutual funds in September, signifying an investment pick-up in the economy. The withdrawals were mostly in income and money market schemes, where corporates typically park their surplus cash.

The scale of the withdrawal is massive and is 72% more than the Rs 83,937 crore taken out in June, the first quarter-end. The mammoth withdrawal finally marks the beginning of the unwinding of the huge cash reserves India Inc had built up with banks and mutual funds from November 2008, as credit simply dried up due to the global financial meltdown.

The withdrawals will also partly explain the sluggish trends in bank credit to industry, up just 13% in the latest reported week, as companies are obviously not depending on such loans to finance their expenditure.

Data sourced from the Association of Mutual Funds of India shows that in September, outflow from income schemes was Rs 1.12 lakh crore while liquid money market schemes saw redemption of Rs 30,000 crore. The corresponding figures for June were Rs 51,021 crore and Rs 34,378 crore.

Though it is common for companies to withdraw money from mutual funds at the end of every quarter to pay their advance tax, the redemption in September was far larger than the tax requirements, indicating a build up of capacity by industry.

?In the last couple of months, we have seen industrial production picking up pace. One reason for the high redemption is that corporates might be using their surplus money parked in mutual fund schemes for capacity building and to meet their working capital requirement for the next two quarters,? said Sanjoy Banerjee, executive director, Icra Online.

Sundeep Sikka, CEO, Reliance Mutual Fund, agrees. ?Though it can?t be pointed out clearly, there is also a possibility that some of the corporate houses might have withdrawn money for meeting their working capital requirements.?

Another senior official with a leading corporate house also mentioned that several corporates had loaded up money for their working capital needs, expecting the tight situation to remain. Now, with the liquidity situation easing and confidence improving, a lot many corporates are indeed pulling out the cash.

However, some, like Dhirendra Kumar, chief executive, Value Research Online, dismiss the huge redemption as routine. ?The kind of money that have come in to these MF schemes, there is nothing unusual in the redemption for the month of September,? Kumar said.

In a sign of economic revival, industrial production (IIP) had gone up in August 2009 by 10.4%, its fastest pace in 22 months. Moreover, the government had revised upwards industrial production growth for July 2009 to 7.2% from an earlier estimated 6.8%.