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Mutual
funds affected by moratorium
Pradeep
Rane
28 July 2004
 Domestic
mutual funds (MFs) had completely exited the stocks of
GTB over the past couple of years. According to data with
the Bombay Stock Exchange (BSE), domestic MFs hold only
2,300 shares of GTB. This means the equity schemes of
MFs will not be affected by the GTB fiasco.
However,
the moratorium declared on the Global Trust (GTB) has
affected a couple of domestic mutual funds, which had
invested in the fixed deposits and bonds of the Hyderabad-based
bank. According to sources, a monthly income plan of a
leading public sector fund has substantial investment
in bonds of GTB.
Also,
a large private sector MF, owned by a leading financial
house, has parked funds from its fixed maturity plan (FMP),
which is expected to come up for redemption this September,
in fixed deposits of GTB. The industry estimates that
the total amount involved could be anything between Rs35
crore and Rs50 crore.
Even
though these investments are safe since the Oriental Bank
of Commerce (OBC) will acquire the assets and liabilities
of GTB, the current moratorium and restriction on withdrawals
of more than Rs10,000 could affect those MFs whose schemes
are due to mature in the coming months.
However,
officials of these MFs have assured investors in these
schemes of the safety of their investments, since the
Reserve Bank of India (RBI) has already said that the
depositors' interests will be protected. In the event
of any shortfall at the time of maturity, the asset management
companies of these MFs will arrange to meet the difference.
After
the merger with OBC, all savings accounts and fixed deposits
in GTB will be transferred to the Delhi-based OBC and
these deposits will attract the same rate of interest
that OBC offers its deposit holders. Interestingly, several
MFs have placed their funds in fixed deposits with smaller
banks like GTB, which offer higher returns for the funds
parked with them.
According
to an MF analyst, almost 60 per cent to 70 per cent of
the corpus of some fixed maturity plans, has been invested
in bank deposits. In the recent past, even banks have
been parking their  surplus
funds in the liquid and gilt schemes of MFs. This is because
MFs were able to provide a higher spread than other available
instruments.
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