Mutual relation with retail investors to go on
Proposal to hike investment limits by AMCs to have few takers.
By TNN |
The slew of announcements made for the mutual fund industry in the Budget may have only a limited impact on retail investors. Experts say the majority of investors in money market and liquid funds are corporates, who will continue to enjoy arbitrage opportunities. The proposal to hike the limit of investments by AMCs from the existing $50 million is also expected to have few takers, as the present limit is yet to be fully tapped by mutual funds.
“The bulk of the investments in the liquid funds and money market funds are made by institutional investors, who will continue to have an arbitrage position,” said Dhirendra Kumar, CEO ValueResearch. With the hike in dividend distribution tax to 25%, some of the mutual fund industry’s debt fund products will come under increased pressure. Money market and liquid funds are those that most corporate houses use to park short-term cash. The obvious beneficiary of the hike in the DDT is bank deposits, which will now become attractive compared to income funds.
Experts say the hike in DDT was on the cards with the growth in bank deposits slowing down. While bank deposits grew by 14.3% during April 2005-January 2006, growth fell to 12.9% during April 2006-January 2007. While it is difficult to estimate the impact on fund houses, asset management companies, which have a large cash fund portfolio, will be significantly impacted.
The dogfight to garner short-term money between mutual funds and banks is expected to intensify. The proposed move to allow individuals to make investments in overseas markets through asset management companies may get a lacklustre welcome with the present limit of individual limit also not being fully utilised.
Last year, the RBI doubled the limit for individuals investing in foreign equities from $25,000 to $50,000, but the momentum of foreign investments has not picked up since then. “The present limit is also not fully exploited by AMCs and such a proposal may not lead to a proliferation of schemes for investment in foreign equities,” said Sanjay Sinha, head (equity), SBI MF. Presently, Franklin Templeton and Principal PNB have mutual fund schemes with allocations for investing in equities in foreign markets.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
