Banks and corporates have redeemed over Rs 50,000 crore from debt mutual funds over the last one week. However,mutual fund houses denied having to face any liquidity crisis as they have sufficient cash to tackle the situation. It is usual to find large corporates as well as banks redeem investments into short-term mutual funds at the end of a quarter to make advance tax payments.
Mahendra Jajoo,executive director and CIO,fixed income at Pramerica MF says,There have been redemptions but this time there is no major cause of worry,as we were holding cash. He added that in the last fortnight,the redemption coincided with maturity of debt papers invested earlier,which help tide the liquidity situation. In September,debt funds had seen redemptions of over Rs 64,700 crore,while in June a massive Rs 1.17 lakh crore were redeemed,largely by banks who had started lending money to telecom companies to bid for 3G spectrum licences.
Market participants say that redemptions are largely taking place in liquid and ultra-short term debt funds. Murthy Nagrajan,head fixed income at Tata MF says,Its a quarter-end phenomenon,but there are no major liquidity crises faced by the industry. He added that since most short-term debt funds had investments in debt papers with terminal maturity of less than 3 months,investors had little reasons to worry. From July 10,Securities and Exchange Board of India (Sebi) had asked fund houses to value money market and debt securities with maturity over 91 days at market prices. Those with maturity of less than 91 days was allowed to price its NAV smoothly without being linked to market prices. Previously only securities with maturity over 182 days were valued at the market price.
Currently one year yields on certificate of deposits (CD) are at 9.75% while that of commercials papers 10%. Some of the debt funds have given returns of only 7.5% while the CDs are trading at 9-9.5%,this shows that many funds were sitting on huge cash to face any liquidity crisis situations, says Dwijendra Srivastava,head fixed income at Sundaram MF. Market players believe that debt funds might witness more redemptions over the next two days.