Top firms don't seem to trust MFs with their money
An ET analysis of investment patterns of 50 companies reveal that corporate investments in MFs have not risen over the past few years. Heard on the street .
MUMBAI: Institutional money dominates assets under management (AUM) by Indian mutual funds (MFs). But leading companies do not appear to be rushing to entrust their surplus funds with assets management companies. An ET analysis of investment patterns of 50 companies in the Nifty group reveal that corporate investments in MFs have not risen significantly over the past few years.
Around 15 Nifty companies (including PSUs and banks) have no exposure to MFs.
However, MF exposure of companies like Hindalco, Wipro, TCS, GlaxoSmithKline and ACC has risen over the past three years. One reason, according to industry officials, could be that many companies have an active treasury arm that decides on investments.
Of the total financial investments of Rs 3,68,000 crore made by Nifty companies, only Rs 30,300 crore, or 8.25%, was allocated to MFs in the financial year 2006-07. This is an improvement over 6.4% during the previous financial year, and 5.7% the year before that. Financial investments consist of money deployed in g-secs, other approved securities, investment in assisted companies (banks), debentures, PSU bonds, shares and MFs. Attributing this trend largely to peaking of capital expenditure cycle, the head of a foreign asset management company says, "Companies with surplus cash are reinvesting in capital expansion programmes. At other times, they are investing in liquid funds, as they can pull out money quickly when required."
Another thing to consider is that balance sheet figures are understated and March may not be the correct representative of all the months.
"You may not get the right data if you look at the investment schedule of companies. Companies are investing surplus money more into FMPs as they provide more tax arbitrage benefits. They are not really keen on equity funds as they are a bit risky and early redemptions are penalised," said Haribhakti Group CEO Shailesh Haribhakti.
Recently, the government gave permission to public sector undertakings to invest up to 30% of their surplus cash in state-owned MFs, but not many fund managers expect huge inflows from that direction.
"Large companies are comfortable investing in liquid funds, they are not keen on waiting for the long-term even if returns are higher. Liquid funds allow companies to pull out whenever they want money. They offer liquidity, yield decent returns and provide tax benefits to the company," said the chief executive of an AMC.
Currently, bluechip PSU companies are parking their surplus funds in fixed deposits of nationalised banks, RBI bonds and treasury bills. Again, only a handful of MFs would come under the ambit of public sector MFs where this money can be parked.
According to Public Enterprises Survey, the total surplus of Central PSUs in 2005-06 was Rs 2,39,535 crore.
"There are various reasons why we have not been actively pursuing smaller companies as potential clients. Low margin is one of the reasons. These companies do not have huge funds, but require as much efforts as we would put into wooing a large company," says a senior official at a MF.
"But we are planning to introduce new strategies like focusing on smaller cities where these companies are located, which was earlier untapped," he adds.
Around 15 Nifty companies (including PSUs and banks) have no exposure to MFs.
However, MF exposure of companies like Hindalco, Wipro, TCS, GlaxoSmithKline and ACC has risen over the past three years. One reason, according to industry officials, could be that many companies have an active treasury arm that decides on investments.
Of the total financial investments of Rs 3,68,000 crore made by Nifty companies, only Rs 30,300 crore, or 8.25%, was allocated to MFs in the financial year 2006-07. This is an improvement over 6.4% during the previous financial year, and 5.7% the year before that. Financial investments consist of money deployed in g-secs, other approved securities, investment in assisted companies (banks), debentures, PSU bonds, shares and MFs. Attributing this trend largely to peaking of capital expenditure cycle, the head of a foreign asset management company says, "Companies with surplus cash are reinvesting in capital expansion programmes. At other times, they are investing in liquid funds, as they can pull out money quickly when required."
Another thing to consider is that balance sheet figures are understated and March may not be the correct representative of all the months.
"You may not get the right data if you look at the investment schedule of companies. Companies are investing surplus money more into FMPs as they provide more tax arbitrage benefits. They are not really keen on equity funds as they are a bit risky and early redemptions are penalised," said Haribhakti Group CEO Shailesh Haribhakti.
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Recently, the government gave permission to public sector undertakings to invest up to 30% of their surplus cash in state-owned MFs, but not many fund managers expect huge inflows from that direction.
"Large companies are comfortable investing in liquid funds, they are not keen on waiting for the long-term even if returns are higher. Liquid funds allow companies to pull out whenever they want money. They offer liquidity, yield decent returns and provide tax benefits to the company," said the chief executive of an AMC.
Currently, bluechip PSU companies are parking their surplus funds in fixed deposits of nationalised banks, RBI bonds and treasury bills. Again, only a handful of MFs would come under the ambit of public sector MFs where this money can be parked.
According to Public Enterprises Survey, the total surplus of Central PSUs in 2005-06 was Rs 2,39,535 crore.
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Many AMCs feel that there are a large number of mid-cap companies with surplus cash, which could be tapped as potential MF investors. "There are various reasons why we have not been actively pursuing smaller companies as potential clients. Low margin is one of the reasons. These companies do not have huge funds, but require as much efforts as we would put into wooing a large company," says a senior official at a MF.
"But we are planning to introduce new strategies like focusing on smaller cities where these companies are located, which was earlier untapped," he adds.
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