Withdrawal symptoms for MFs on advance tax eve

It is advance tax time and mutual funds have got the withdrawal symptoms. A trickle now, redemptions are expected to become a torrent as banks and corporates rush to mobilise cash to meet their advance tax obligations.

Industry officials sought to downplay the issue as usual.

Standard Chartered Mutual Fund managing director Naval Bir Kumar said, "It is hardly any significant amount. For us, it has been a mere Rs 140 crore." The fund has around Rs 10,000 crore of assets. Others were more cagey about revealing figures but said that it was not of much consequence.

A spokesperson for Bira Sun Life Mutual Fund called it "nothing extraordinary", while a spokesperson for Pru-ICICI MF said that it was something that they go through every year.

It is estimated that around five per cent of the assets of the mutual fund sector would have been pulled out and 15 to 20 per cent more of assets under management would erode as more banks and corporates redeem their units. The fund industry has around Rs 1.4 lakh crore worth of assets under management.

While this in itself may not be alarming, what is serious is that the industry has already lost more than Rs 4,000 crore in debt and liquid schemes as big-ticket investors exited due to the volatility in the debt market.

"We will be losing money for two months in succession," said an industry source. Debt and liquid funds are the mainstay of the asset management industry as that is where the maximum amount of money comes in.

Institutional investors do not invest much in equity schemes, which are supported by retail investors.

So the outflows which are happening now is not expected to be replenished, which is the usual practice, since there are indications that the interest rates might be on an uptrend.

Further rise in yields will only result in capital loss for the investors.