Hit by a landslide of redemptions during October-November 2008, mutual fund houses were compelled to take huge loans in order to process customer requests for cashing out on their MF units.
According to Sebi regulations, mutual funds (MFs) have to disclose borrowings, which amount to over 10% of a fund’s net assets in the half-yearly disclosures.
Leading the chart of borrowers for the 6 months ended March 31, 2009 are Reliance MF (over Rs 6,000 crore), followed by Religare MF (Rs 4,361 crore), Birla Sun Life MF (over Rs 3,400 crore), Tata MF (nearly Rs 3,000 crore), according to data collated by MF tracker ValueResearch shows. Others such as Principal MF, Deutsche MF, Fortis MF, IDFC MF, HDFC MF, HSBC MF and DBS Chola MF borrowed between Rs 200 crore and Rs 600 crore in the same time. Between themselves, 14 fund-houses borrowed around Rs 21,000 crore, data shows.
“Some asset management companies had to borrow around 30% to even 100% of the assets in their short-term funds at the end of September 2008. Though Certificate of Deposits (CD) were used, the rates at which we had to borrow were also high, sometimes touching 12%. Fortunately, most of the money for us and others would have been paid by now,” a top official said.
While mutual funds currently have excess cash amongst investors’ assets on their hands, experts point out that the borrowings done were always a part of the liabilities of the asset management company. “There is no doubt that funds borrowed money at high interest rates, but most of the borrowings have been repaid. This data helps in identifying who borrowed and what amount. Liquid and shortterm debt funds were the ones who faced the most redemption requests,” Dhirendra Kumar of ValueResearch said.
In mid October ‘08, RBI enabled banks and primary dealers to raise Rs 20,000 crore through repo route to help the mutual funds industry tide over the liquidity crisis and withstand the redemption pressure.
It had also permitted banks to provide additional liquidity support of up to 0.5% of their total net deposits to aid these funds. The individual borrowing amounts indicate the nature of desperation and extent of trouble that prevailed at the fund majors, indicate senior MF industry professionals.
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