Liquid funds likely to change investment norms from April

BS 26/11/08


The mutual fund industry is understood to have agreed to implement the proposal not to invest liquid scheme corpus in papers with maturity beyond 91 days from April 2009.


The decision was taken yesterday at a meeting of some of the heavyweights in the Association of Mutual Funds of India (Amfi). Initially, some members were of the view that this should be implemented with immediate effect. However, when a view emerged that implementing the proposal in a hurry may not serve the purpose, the members finally decided to make it effective from April next, said an industry source.


The mutual fund industry is fine-tuning its recommendations before submitting the same to the Securities and Exchange Board of India (Sebi). Amfi had issued the draft proposals in this regard last week.


There were lengthy discussions on the maturity of fixed maturity plans (FMPs). While some players favoured FMPs of three to six months, others advocated a minimum 12-month maturity. Efforts are on to sort out the differences with the help of Amfi. If there is no consensus, the decision may be left to Sebi.


Those favouring a three-month maturity argue that if the period is long, investors would go in for fixed deposits (FD) with banks.


They have also decided that all funds will have to mandatorily disclose their complete portfolio at least on their website. A transparent portfolio will help investors in taking informed decision in tough times when generally rumors rule. Already, some fund houses have been making full disclosure.


In next few days, these proposals would be finalised and submitted to the capital market regulator after which Sebi may come out with revised norms for mutual funds.


The industry is of the view that the proposals that Amfi is going to submit should give confidence to the market regulator that mutual funds are quite disciplined in their approach towards investors.


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