RBI extends deadline for withdrawal of MFs' current account facility

30 Sep 2006

1

Mumbai: The Reserve Bank of India (RBI) has allowed mutual funds to continue the current account facility provided to them till November 19. RBI had earlier asked MFs to close the current account facility with it by October 3.

The RBI is of the view that there is no need for it to offer overdraft facilities to mutual funds through current accounts operated by them since MFs cannot now participate in the call money market.

The mutual fund industry, meanwhile, made representations to the central bank in this regard. RBI is believed to have arrived at this decision following long discussions with representatives of the Association of Mutual Funds in India (AMFI), reports quoting AMFI chairman A P Kurian said. Kurian is a former Executive Trustee of the Unit Trust of India.

RBI offers current account facility to only those mutual funds that have been in operation before 2000 and the current move to withdraw this facility only affects MFs set up before 2000.

This cash account helped funds to route transactions at a quicker pace. The subscriptions it receives from investors could be immediately deployed in the money market. MFs could also debit their accounts with the RBI well before the cheques given by investors were realised, which would in effect be an overdraft facility provided by the RBI to MFs.

The current account facility offers greater liquidity for the mutual funds and investors alike as cash was always at hand. It also facilitated quicker redemption of mutual fund units for its holders.

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