Having proven its mettle as one of the countrys biggest investment management firm in the equities market, National Investment Trust is launching its first income fund. And the launch so far has come with quite a bang.
The oldest asset management company thanked investors yesterday for more than Rs2.5 billion worth of trust reposed in its Government Bond Fund. The list of investors boasted by NIT included financial institutions, state run firms and private corporations alike. This makes one wonder why are investors so bullish on a fund that plans to invest money in government securities.
In the absence of fresh Term Finance Certificates, commercial papers and derivative products in capital markets, the onus of investment avenues for existing money market and income mutual funds are on government securities and bank deposits. Moreover, in the back drop of TFCs pricing issue that arose last year, the confidence of funds is shattered in that avenue.
But while higher appetite for minimum risk and high liquidity government papers could be an answer to the healthy subscription of NIT GBF, a more plausible answer could be attractive yields on government paper, considering that dearth of lending by banks has reduced the gap between Kibor and 12-month Treasury bills since the start of this year.
Despite many confidence building statements made since the Tokyo pledges, the government hasn received a dime as yet. Chances are by the time the commitments due for this fiscal year are fully materialized, if they materialize at all, the fiscal year will be almost gone - leaving the government scrambling for money to finance its revenue-expenditure gap, threatened by less-than targeted tax collection.
This means the government will have to borrow more from domestic sources. With NSS rates unlikely to rise any time soon, it will either be the State Banks or commercial banks shoulder.
Ordinarily, the government would have relied mostly on commercial banks given the suspending dagger of meeting the IMF specified target of net zero quarterly borrowing from the central bank. But now with the tilt of private fixed income mutual funds towards government securities and the launch of NIT GBF, private individuals and other relatively smaller businesses who couldn previously invest in government bonds may also help the government raise financing or fiscal support.
According to fund managers reports, 13 mutual funds had invested Rs14 billion in T-Bills as of September. Now with NIT with its new fund that has a policy to maintain at least 70 percent capital invested in government bonds amid investors trust on government owned fund, mutual funds investment in government bonds is likely to increase significantly.
This means that the borrower i.e. the government - in competition with not only corporate bonds but also with commercial banks - will have to keep yields on its securities attractive for that marginal risky investor. Hence, the coordination of fiscal and monetary policy is implicitly exerting pressure on latter, implying that base rate will not be cut aggressively to keep the government instruments attractive. So much for the rate cut hopes.
Comments
Comments are closed for this article.