A recent ICRA report projects a fall of 17% in debt AUM and 11% decline in overall AUM
The advance tax payment and the credit pick-up in the banking industry have led to large redemptions by investors during the year end. The debt AUM would be affected by the increase in divided distribution tax (DDT) for corporate investors by 30 percent from June 2011. Presently, corporate participation is more than 70% in debt funds. According to ICRA, there will be a decline in the industry debt AUM level by 17 per cent and overall AUM levels by 11 per cent in the current fiscal.
ICRA believes that the ratio of the industry debt AUM to overall AUM would fall over the next six months due to the regulatory reforms. RBI is now imposing a cap of 10 per cent of the banks’ net worth for investments in debt-oriented mutual fund schemes which will upset MF investments, believes ICRA.
The investments in mutual funds in the past two years have largely exceeded the proposed cap of 10 per cent of net worth. Funds parked in mutual funds reached a peak of Rs 1, 69,000 crore in October 2009.
The proposal to hike DDT in the Union Budget of 2010-11 will lead to a fall in corporate investment in liquid funds. The DDT would nullify the tax arbitrage and impact the future inflows in mutual funds from corporate investors.
