After SBI, Reliance MF files offer document to launch its Reliance Infrastructure Debt Fund.
Reliance Mutual Fund is the latest to file offer document with SEBI to launch its Reliance Infrastructure Debt Fund. The scheme will be a close ended scheme with a minimum application size of one crore. AMCs have to get at least a Rs 25 crore commitment from strategic investors before opening it up for subscription to other investors.
Recently SBI had filed for a similar fund. So far only IDFC has got SEBI’s approval to launch a Infrastructure Debt Fund. IDBI, Axis, L&T have also sought SEBI’s permission to launch IDFs.
The Reserve Bank of India has allowed NBFCs, banks and mutual funds to launch IDFs. The finance minister in 2010-11 budget had allowed setting up of IDFs to channelise funds for infrastructure sector.
Though all AMCs are allowed to launch IDFs, so far only fund houses having exposure to infrastructure sector through their sponsors or sister companies are planning to launch IDFs.
On June 25, the RBI had reduced the lock-in period for investments by non-resident investment in IDFs to one year for IDFs floated through NBFCs. AMCs will have an advantage in terms of costs because unlike NBFCs who have to float a new company, MFs will be able to launch them as schemes within their existing set up. While NBFCs are able to offer a fixed return while marketing IDFs to investors, MFs do not have this advantage.
“Mutual Fund IDFs will be more aggressive. There will be scope to earn higher returns though MF route. Investors need to have higher risk appetite to invest in such funds. AMCs would have a cost advantage as compared to NBFCs who’ll have to bring in capital to set up an IDF,” says Deepak Chatterjee, MD & CEO, SBI Mutual Fund.
Institutions so far have been investing in liquid schemes of AMCs which do not come with any lock in period. Mutual Funds have to attract long term money from same investors through their IDFs. While AMCs would want to seek relaxation in lock in period, officials say that SEBI might not reduce the lock in since infrastructure projects have a long gestation period. SEBI has stipulated that IDF fund managers should have some prior experience in infrastructure financing. IDBI Mutual Fund has roped in Anil Dhawan from IDBI Bank who has 13 years of experience in the area of infrastructure financing to manage its IDF.
“There is little scope for getting relaxation in lock in because the funds have to be invested in infrastructure financing which are long tenured. One can’t operate in this market with short term money. Mutual Funds have been allowed to invest in new green field projects also. The lenders to these projects will be banks and banks will come with a long period of financing. If we don’t have a longer horizon then we won’t be able to participate. NBFCs have designed these IDFs in a different way. NBFCs will offer a fixed return and they’ll take the credit risk. NBFCs will indicate a return whereas we can’t. The existing infrastructure sector funds of AMCs invest in equities of infrastructure companies while IDFs will invest in debt papers of these companies. These debt papers are better than shares of infrastructure companies because they could offer higher returns,” says Debasish Mallick, MD & CEO, IDBI Mutual Fund.
An IDF can be set up as a trust in case of mutual funds and company in case of NBFCs. SEBI will regulate IDFs floated by MFs while RBI will oversee IDFs of NBFCs.
