Monday, November 29, 1999

Debt fund redemptions could touch Rs 1 lakh crore in June

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Advance tax payments and BWA auction have put a lot of pressure on liquidity, as debt fund investors are going for massive redemption.Mahendra Jajoo, head of Fixed Income at Pramerica Asset Managers said: "Banks and corporates are pulling money out of debt funds. There is certainly a liquidity crunch as over Rs 80,000 crore have been redeemed in the last few days itself." By the end of this month, market estimates this figure to cross the Rs 1 lakh crore mark.Debt assets fell in May too. In May, income schemes saw outflows of over Rs 35,000 crore, while liquid schemes witnessed redemption of approximately Rs 29,300 crore. Banks had then pulled out money to lend it to telecoms companies for the 3G auctions.The government earned over Rs 1.06 lakh crore from the auction of 3G and BWA in the last one month. The 3G auction yielded Rs 67,500 crore and the remaining came from BWA auction.The sudden onsluaght of redemptions has taken some fund houses by surprise. Shobit Gupta, head-fixed income at Principal PNB Mutual Fund said, "There has been some liquidity crunch in the last few days. While mutual funds were ready for it, huge redemption in a short span of time caused some discomfort."However, he added that it will not have much impact and things will revert to normalcy soon.Market participants expect that June being the last month of the quarter (Mar-June), there are higher chances that the tally of redemptions in case of debt funds will cross Rs 1 lakh crore by the end of this month. "With new norms becoming applicable from July 1, 2010, corporates will redeem some money towards the month end, " said Jajoo.New Sebi rules presribe that bond portfolios exceeding 91 days would be valued on a marked-to-market basis against the earlier norm of six months. This is expected to bring more volatility in NAV as bonds get market to market on a daily basis.Huge redemption during the end of every quarter is not a new trend. Banks as well as corporates usually pull-out money for the advance tax obligation. In March, 2010, the income scheme had seen record outflows of over Rs 1.64 lakh crore, while in December, 2009 the redemption was approximately Rs 1.55 lakh crore including outflows from income and money market schemes.

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