Companies such as Hero Honda, Infosys and Bajaj that park their surplus cash in liquid mutual funds investing in shorttenure financial instruments could see lower returns after the new Securities and Exchange Board of India (Sebi) guidelines became effective from May.
As per new SEBIi guidelines, such funds can only invest in securities with a maximum tenure of 91 days. There was no limit earlier on the tenure of securities that liquid funds could invest in.
Liquid funds are short term debt funds that offer investors the option of withdrawing their money at very short notice ranging from overnight to just over a week.
“Liquid schemes are the favoured instruments for parking surplus cash as they offer instant liquidity. Such schemes can now invest only in short-tenure securities which carry low risk and hence, offer lower returns,” IDFC Mutual Fund head fixed income Arjun Parthasarathy said.
As per industry estimates, the annualised returns from liquid funds for companies could come down from 7-8 .5% earlier to just 4.5-5%. Although companies also have the option of parking their cash in fixed deposits, liquid funds are preferred as they offer better tax-adjusted yields and there is no penalty on premature withdrawal of funds as in the case of the former.
Two-wheeler major Hero Honda has about Rs 3,000-3,500 crore in surplus cash and invests about 98% of it in mutual funds. According to a person with knowledge of the situation, the firm’s annual treasury income of Rs 200-220 crore may take a hit of about 10-12% or Rs 20-25 crore as a result of the reduction of returns from liquid funds.
Bajaj Auto CFO Kevin D’Sa said the firm has surplus cash of about Rs 1,400 crore and the company’s entire money is in “strong fixed income securities”. Fixed income securities consist of certificates of deposits, treasury bills and commercial papers. Liquid funds invest in most of these securities.
Infosys had invested about Rs 1,500 crore in liquid funds in the quarter ended June. It had no investments in mutual funds in the Jan- March quarter and has typically parked its cash largely in bank deposits. “As per our policy, we invest only in fixed deposits and liquid mutual funds. We have invested in liquid funds in the last quarter. If the fixed deposit yields are higher in future, we could think of putting more money there,” Infosys CFO V Balakrishnan said.
As per new SEBIi guidelines, such funds can only invest in securities with a maximum tenure of 91 days. There was no limit earlier on the tenure of securities that liquid funds could invest in.
Liquid funds are short term debt funds that offer investors the option of withdrawing their money at very short notice ranging from overnight to just over a week.
“Liquid schemes are the favoured instruments for parking surplus cash as they offer instant liquidity. Such schemes can now invest only in short-tenure securities which carry low risk and hence, offer lower returns,” IDFC Mutual Fund head fixed income Arjun Parthasarathy said.
As per industry estimates, the annualised returns from liquid funds for companies could come down from 7-8 .5% earlier to just 4.5-5%. Although companies also have the option of parking their cash in fixed deposits, liquid funds are preferred as they offer better tax-adjusted yields and there is no penalty on premature withdrawal of funds as in the case of the former.
Two-wheeler major Hero Honda has about Rs 3,000-3,500 crore in surplus cash and invests about 98% of it in mutual funds. According to a person with knowledge of the situation, the firm’s annual treasury income of Rs 200-220 crore may take a hit of about 10-12% or Rs 20-25 crore as a result of the reduction of returns from liquid funds.
Bajaj Auto CFO Kevin D’Sa said the firm has surplus cash of about Rs 1,400 crore and the company’s entire money is in “strong fixed income securities”. Fixed income securities consist of certificates of deposits, treasury bills and commercial papers. Liquid funds invest in most of these securities.
Infosys had invested about Rs 1,500 crore in liquid funds in the quarter ended June. It had no investments in mutual funds in the Jan- March quarter and has typically parked its cash largely in bank deposits. “As per our policy, we invest only in fixed deposits and liquid mutual funds. We have invested in liquid funds in the last quarter. If the fixed deposit yields are higher in future, we could think of putting more money there,” Infosys CFO V Balakrishnan said.
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