MFs to get rich with inflows from PSUs

Mutual funds are set to bag a huge chunk of the nearly Rs 3,05,000 crore cash reserves of the public sector companies.

The government yesterday allowed PSUs to invest in mutual funds after a gap of eight years.

Besides, under the government's New Pension Scheme, three asset management companies would also be permitted to manage the pension funds set up for the central and state government employees who joined service after 2004. The total size of this corpus is around Rs 1,700 crore.

According to industry estimates, even if 10 per cent (around Rs 30,000 crore) of the cash lying with the PSUs comes to the MFs, the total asset size of the industry would near Rs 4 trillion. Presently, the industry's assets under management (AUM) is Rs 3,50,000 crore (Rs 3.5 trillion) and has grown 51 per cent since the last one year.

"We have been pitching for this permission for the past few years. The PSUs were investing with us till 1998 and this was stopped following various issues. Now, with this decision, good money will come to the MFs. We welcome this decision," AP Kurian, chairman, Association of Mutual Funds in India, said.

The domestic equity schemes gave one of the highest returns last year based on the robust stock markets. The MFs are witnessing increasing retail as well as institutional participation in the equity and fixed income schemes respectively.

Presently, 60 per cent of MF industry's corpus comes from the fixed income schemes which invest in stable returns-giving instruments such as government securities and bonds.

Industry sources also indicate that with this decision, the industry might see big inflows into the fixed income schemes, as corporates prefer to invest in secured return-giving instruments.

"The government might ask the state companies to maintain a cap on their equity exposure, while fixed income would get the biggest exposure. The PSUs have huge cash on which they are earning small returns.

They have an excellent opportunity to park some of this money into liquid schemes or fixed maturity plans (FMPs) which have given up to 10-12 per cent returns this year," said a top official of SBI mutual fund.