The asset size of fund houses having sizeable corpus in liquid schemes will slump and could dent the industry revenues
Mumbai: The RBI’s decision to cap banks investment in liquid schemes could result in a potential loss of around Rs 50 crore if an estimated Rs 50,000 crore moves out of the industry in the next six months. Moreover, fund houses having a sizeable corpus of liquid funds could witness a dip in their corpus once banks begin to pull out money.
Banks investment in mutual fund industry is estimated to be around Rs1.50 lakh crore. However, fund houses say that they have witnessed such outflows in the past too and are well equipped to face this challenge.
The mutual fund industry charges an average of 25 to 45 basis points annual expense for managing liquid funds in the super institutional scheme category. From this head, fund houses have to meet costs on brokerage, fees to registrar and custodian, etc. After deducting all the expenses, the fund house earns an average of 10 basis points on the corpus.
Although the liquid money stays with the fund house for a short tenure, it could compound the problems for the fund industry already battling with a host of regulatory changes.
“There will be a gradual outflow and to that extent the industry will have less bank money. There have been many occasions in the past when banking money has been fairly negligible. It’s not the first time we are facing this issue. If Rs 50,000 crore moves out of the industry, it will have a revenue impact, “says Karan Datta, National Sales Head, Axis Mutual Fund.
Liquid funds mostly invest in papers like repo, treasury bills, commercial paper, certificates of deposit and non-convertible debentures.
“It will only have a marginal impact. The AUMs of fund houses having larger liquid fund corpus will fall down and if their size gets curtailed then the smaller fund houses with predominantly equity corpus will stand out,” said a CEO of a private mutual fund.
“We are expecting to see Rs 60,000 crore to Rs 70,000 crore outflows in the coming months, so to that extent AUM will be reduced. The banks withdraw and lend it to companies who will in turn park it with fund houses temporarily,” says a CEO of a mid-sized fund house.
Around 28 percent or Rs 2.22 lakh crore of the industry’s AUM consists of liquid funds while 22 percent or Rs 1.70 lakh crore consists of equity assets. Fund houses are labeled as big or small based primarily on their assets under management. In this situation, fund houses having retail focus with large equity assets would stand to gain.
