MFs to meet Amfi over Sebi deposit norms

In view of the Securities and Exchange Board of India's norms on investments in short-term deposits, mutual fund managers are likely to approach the Association of Mutual Funds in India (Amfi) on Monday to examine issues such as re-balancing of portfolio and its impact on returns and investors, industry officials said.

According to industry sources, fund managers had an informal interaction to discuss Sebi norms on deposits.

On Monday, the market regulator said mutual funds cannot deploy more than 15 per cent of their corpus in short-term deposits of banks, which can be extended up to 20 per cent with a prior approval from the respective board of trustees of mutual funds. Further, the Sebi defined short-term deposits as those with tenure of 91 days.

Also, Sebi said existing schemes need to comply with this norm within a period of three months.

This new norm is seen impacting the fixed maturity plans, which offer indicative yields by locking in investments. A senior fund manager, who did not want to be named, said, "We had an informal interaction on Thursday. There would be a meeting of CEOs/CIOs on Monday and short-term deposits would be discussed. Lots of issues are coming and we need to clarify that."

Amidst rising rate scenario, mutual funds floated a slew of quarterly FMPs in March, offering 11-11.75 per cent annualised return. Along with quarterly FMPs, a slew of 13-month FMPs were also floated which offer double indexation benefits to investors, giving them the advantage of indexing investments to inflation for two years while remaining invested for slightly over one year.

As per Amfi data, 95 new fixed-term plans garnered Rs 29,232 crore during March.

In case fund managers choose to wind up deposits, it would adversely impact the returns which were offered to investors while floating FMPs. AP Kurian, chairman, AMFI, said, "There would be some impact on returns if deposits (over 91-days) have to be broken."

There are a few fund houses such as Tata Mutual, Standard Chartered Mutual, Sundaram BNP Paribas Mutual, DBS Chola Mutual which do not see any problem as they do not have deposits over 91-day tenure in their portfolios. But some representatives of fund houses desired clarity on re-balancing portfolio in case the deposit is over 91 days.

A fund official said, "The norms are not clear for exiting schemes. We can invest only in deposits up to 91 days. What should be done with over 91-day deposits? How do we re-balance the portfolios? We need to wait for further clarity from the Sebi."