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PSUs can invest 30% surplus funds in MFs

Source: PTI
Last updated on: December 26, 2008 16:39 IST
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The Indian mutual funds, hit hard by redemption pressure, have something to cheer with the government allowing navratnas and mini-ratnas to invest 30 per cent of their surplus funds in equity market through public sector mutual funds.

The scheme to allow navratnas and mini-ratnas in this regard expired on August 1 this year, a year after it was notified.

"CCEA on Friday reviewed the position and has extended the scheme from August 1 till further orders," Home Minister P Chidambaram told reporters in New Delhi.

He said public sector enterprises operate almost at par with commercial enterprises.

"The main thrust of earlier guidelines regarding investment in surplus funds of PSEs was that they should invest their surplus funds only in instruments with maximum safety, with no element of risk on the yield obtained from such investments. It was felt that they are denied a profitable investment opportunity because of restrictive clauses on investment," Chidambaram said.

Besides, the PSEs have professional management or access to professional management services and hence are capable of taking investment decision in their best interest, he said, adding MFs are now considered as attractive investment opportunities and recommended for retail individual investors.

"It is a positive development for the funds, though not significant as not many PSEs invest through this route," Dhirendra Kumar of mutual fund tracking firm Value Research said.

Assets under management of mutual fund industry has come down to around Rs 4,00,000 crore (Rs 4,000 billion) from over Rs 5,50,000 crore (Rs 5,500 billion) a year ago.

Till August 2007, these enterprises were not allowed to invest their surplus funds in the stock markets and mutual funds except in units/schemes of Unit Trust of India.

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