Mutual funds affected by moratorium

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.