MFs fear redemptions worth Rs 2t

NEW DELHI, July 16 (PTI): Concerned over additional tax proposals made in the Budget 2014-15, mutual funds (MFs) fear that redemptions in investments worth over Rs 2 trillion that could put a huge burden the banking sector.
Mutual fund houses manage more than Rs 7 trillion under liquid and debt schemes, which are then invested in corporate debt securities and money market instruments.
According to industry experts, MFs are concerned that the budget proposals may hit them hard and result in massive outflow.
"With huge outflows from these schemes, it is expected MFs will have to liquidate their investments of over Rs 2 trillion, and the burden of this funding will fall on banks," an industry official said.
Echoing a similar view, industry body AMFI said that MFs are expected to see an erosion in debt AUMs (Assets Under Management) in excess of Rs 1.5 trillion over time and its burden will eventually fall on banks and increase the funding costs for corporates.
Besides, it said, the move will severely impact liquidity in the debt markets.
In the budget proposals made on July 10, Finance Minister Arun Jaitley said that long-term capital gains tax on debt- oriented mutual funds will go up to 20 per cent from 10 per cent. The move is part of government's effort to bring parity with banks and other debt instruments.