In an attempt to curb the black money in the financial system PM Modi has announced some bold moves. Denomination of Rs 500 and Rs 1000 will cease to exist as legal tender. Experts in the mutual fund industry are optimistic towards this bold step.
There is absolutely a positive impact says Lakshmi Iyer, CIO of Kotak Asset Management. “As people will deposit money in banks, the savings will increase. Eventually the overall investments will increase; significant changes in mutual fund industry may be visible over a long term horizon.”
Gopal Agrawal, CIO Mirae Asset Global Investments seconds the view. “Many people will come into the ‘tax net’ bracket; hence attractiveness of equity as asset class will rise. It will have medium and long term impact. However, in short term, debt funds would be attractive because it provides better liquidity.”
G Pradeepkumar, CEO of Union Asset Management Company says, “In the fixed income side the yields are falling which will benefit the debt funds. On the equity side, more cash flows will be generated in main stream so for the longer term equity funds will be attractive”
Vidya Bala, Head- Mutual Funds Research at Funds India says that there could be a temporary increase in demand for money and therefore short-term rates - especially for liquid and ultrashort-term funds could see a hike.”
Dwijendra Srivastava, Chief Investment Officer - Debt, Sundaram MF has slightly different views on the subject. “Definitely there is no negative impact on the industry. The rise of liquidity in the bank will not ensure investment in mutual funds because of stringent KYC norms. It may have a longer term impact.”
To sum up black money certainly has some impact on the economy. However there will be a temporary slowdown in economy mainly due to the unorganized sectors. But in the long run, the move will certainly have a positive impact on the economy.
