Tight liquidity conditions following rising interest rates saw assets under management (AUM) of as many as three mutual funds fall by more than 15 per cent June 2008. A deeper study of mutual funds’ assets revealed that while retail investors who largely buy equity funds have held on, large, institutional investors have exited mutual funds through redemptions, with AIG Mutual Fund and IDFC Mutual Fund losing almost a quarter of their debt assets.
“We saw money going out of money market and liquid funds,” said Rajiv Anand, chief investment officer, IDFC Mutual Fund. “Money went out from these funds for advance tax requirements. Besides, there was lack of liquidity in the market which led to slowdown in the inflow.”
Money market funds are those that invest in highly liquid, short-term, high credit quality and generally considered ‘safe’ securities. Financial institutions buy these funds to get a slightly higher return on their short term investments.
While the three funds saw significant drops in their debt portfolio, their equity investors stayed put, more or less. In fact, the equity assets of AIG rose by almost 4 per cent.
The big fund houses—Reliance Capital AMC (asset management company) and ICICI Prudential AMC —escaped the June redemption pressure. While Reliance saw its debt portfolio fall by just 7 per cent, ICICI Prudential witnessed a growth in its debt portfolio by 4 per cent.
“We faced pressure on debt front but transparency in our portfolio holdings has built investor confidence,” said Nilesh Shah, deputy-managing director, ICICI Prudential AMC. “We invest in high quality, AAA-rated instruments which give confidence to investors to invest with us.”