MF assets decline further as big investors pull out of the market

Do the tight liquidity conditions and high interest rates have any connection with the shrinking asset base of mutual...

Do the tight liquidity conditions and high interest rates have any connection with the shrinking asset base of mutual funds? With the cost of funds rising and stock markets taking a beating, big investors redeemed heavily for their fund requirements, causing the average assets under management (AUM) fall by 6.2 per cent in July.

“The fall has been steeper in July compared to June. This can be attributed to redemptions that most fund houses saw. Between May and July, the industry’s AUM has dipped 11 per cent from over Rs 6,00,000 crore to the present Rs 5,29,629 crore,” said an industry expert.

“The liquidity situation has been tight after the monetary measures by the RBI. Corporates and banks are now feeling the pinch of expensive credit availability thus the MF industry faced some redemption pressure. Call money rates are prohibitive so institutions are pulling out the cash invested in the markets,” said Birla Sunlife Mutual Fund CEO Anil Kumar. Liquid and liquid plus schemes faced maximum redemption last month.

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Companies which have planned investments in new capacity or diversification have been unable to raise funds from the primary market. On the other hand, the sharp rise in interest rate is keeping them away from banks. The reason for the fall in AUM, is not just because of weak markets or huge redemptions, it is the sentiment that has been hit.

THE JULY DIP

• Industry’s AUM fell by Rs 35,123 cr led by steep redemption and lack of inflows

• Reliance MF lost 6,249.54 cr with its AUM falling to Rs 84,564 cr in the month

• ICICI Pru MF, saw its AUM dip by Rs 4,312.93 crore