Funds do not see inflows from PSUs

Mutual funds do not see navratna and mini-ratna public sector companies investing in equity schemes immediately in a big way despite the government allowing them to invest up to 30 per cent of their cash surplus in the equity schemes.

However, they welcomed the move for development of industry in the long-term.

The cabinet committee on economic affairs on Monday said the public sector undertaking (PSU) companies can now invest in equity schemes of the state-owned mutual funds. UTI Mutual, SBI Mutual, and BoB Mutual qualify as the state-owned mutual funds.

Fund officials said normally PSU companies, being conservative in nature, would opt for short-term debt schemes such as liquid funds for their surplus cash management.

"I do not think the money will come in equity (funds). The move is quite positive. It reflects the open mind of the government. There will be more of inflows in short-term liquid funds," said Jayesh Shroff, fund manager, State Bank of India-sponsored SBI Mutual.

Echoing a similar view, a UTI Mutual official said: "They will go for treasury management tools such as in liquid, fixed term plans. They will wait for sometime and then go for equity funds."

Liquid or cash plans are used mostly by corporate treasuries for short-term cash management as they on an average earn 7-7.5 per cent return.

Companies find them attractive over zero-interest earning current accounts, also, because liquid plans do not levy an entry or exit fee.

Fixed maturity plans have been the most favoured investment avenue by corporate investors, as they offer indicative yields by locking-in investments in high yielding debt securities.

A Balasubramanian, chief investment officer of Birla Mutual said: "It is an enabling provision for PSU companies. You cannot expect immediate money, but long-term there would be inflows."

According to officials, the surplus cash of PSUs is pegged at Rs 100,000-120,000 crore.

PSUs were so far allowed to invest only in fixed deposits of state-owned banks and government securities.

A Mumbai-based distributor said, "Although, I would like that (PSUs to invest) to happen, but you never know when it will happen. As it is, even provident funds have still not come into mutual funds."

In January 2005, the finance ministry had allowed non-government provident funds and gratuity funds to deploy up to 10 per cent of the corpus in equity funds, while exposure in gilt funds was restricted to 5 per cent.