Higher advance tax payments and withdrawal of funds by banks led to an eight per cent decline in the mutual fund industry's assets under management (AUM) in June 2011.
This is the second consecutive monthly drop in AUM for the industry. In May 2011, industry AUM declined by Rs 53,926 crore.
As of June-end, it was Rs 6.73 lakh crore, lower by Rs 58,272 crore compared with the May 2011 figures, according to Association of Mutual Funds in India data.
“Prior to the RBI directive limiting their investments liquid schemes, banks had invested about Rs 1 lakh crore into mutual funds. This investment, which has now come down to Rs 60,000- 70,000 crore, is expected to go down further to about Rs 30,000- Rs 40,000 crore,” said Mr Dwijendra Srivastava, Head - Fixed Income, Sundaram Mutual.
Liquid and income funds saw the highest drop of Rs 41,055 crore, followed by the income schemes which saw a decline of Rs 17,761 crore.
“RBI has given the banks ample time till December to withdraw the funds invested so that they are in compliance of the regulatory directive. This is not a knee-jerk reaction and will give time for mutual funds to re-align their portfolios,” said Mr Srivastava.
Analysts also say that this will make banks more active on the shorter-end of the yield curve and increase investments into the 15-day or one-month papers. Fund managers estimate that around Rs 30,000-35,000 crore has been paid as advance tax payments in June 2011.
The equity schemes, on the other hand, saw an increase of Rs 1,496 crore in its AUM, a marginal increase of about one per cent.
“Clearly, in the last few months there has been an increase in retail investor participation. Most of them have come in through the SIP route,” said Mr Hemant Rustagi, CEO, Wiseinvest Advisors.
Equity schemes' AUM stood at Rs 1.67 lakh crore in May 2011 compared with Rs 1.68 lakh crore in June 2011.
Other schemes which witnessed an increase include ELSS equity schemes (Rs 188 crore) and Gold ETFs (Rs 105 crore).