The mutual fund industry saw moderate redemptions from banks on July 16, but the situation has improved since.
The mutual fund industry did not see any large scale redemptions from banks in liquid funds, say industry officials. The hike in overnight rates resulted in a sharp drop in NAVs of bond funds. According to Value Research, Gilt funds (Medium & Long Term) NAVs dropped by 2.59% while that of income funds declined by 2.03 % on 16 July 2013.
The RBI had increased the marginal standing facility rate by 300 basis points to 10.25% and bank rate to 10.25% on 15 July to stem the falling rupee. From today, banks cannot borrow more than Rs 75000 crore from the liquidity adjustment facility (LAF) through the daily repo window.
“We received some redemption from banks yesterday but they wanted to cancel their transactions in the evening as the situation had improved. There was some concern because the yields had dropped which was unexpected,” said Himanshu Vyapak, Deputy CEO, Reliance Mutual Fund.
In order to help AMCs tide over this crisis, the RBI is conducting a special 3-day repo at an interest rate of 10.25 per cent for an amount of Rs. 25,000 crore with a view to enabling banks to meet the liquidity requirements of mutual funds.
“The redemptions are normal. The industry has not seen any panic redemption yet. Some banks have made redemptions. The situation is likely to improve in few days,” said Sarath Sarma, Executive Director & Head- Sales, IDBI Mutual Fund.
“The step taken by RBI has helped the industry,” said a CEO of a bank sponsored AMC.
The
mutual fund expert Dhirendra Kumar agrees. “This proactive step by RBI has
ensured orderly conduct in a situation that was potentially disruptive, said
Dhirendra.
