Mumbai, Dec 23: The Securities Trading Corporation of India (STCI), the country's largest primary dealer with a paid-up capital of Rs 500 crore, is exploring the possibility of setting up an asset management company for floating a "gilt fund".

The securities trading house is considering raising funds from the public and investing these in government papers and, in turn, allot "gilt units" to the investors. The other option being considered by STCI is to supply government securities, by offering two-way quotes, to other mutual funds like the Unit Trust of India, who plan to set up dedicated gilt funds.

The UTI is planning to launch such a fund as it is perceived that there would be a considerable amount of investor interest in government securities once trading in these zero-risk instruments is brought to retail investors.The National Stock Exchange and the Stock Holding Corporation of India have already obtained an SGL account with the Reserve Bank of India to act as depository participants to enable investors to trade in government securities through them.

NSE has, in fact, gone a step ahead and decided to charge a meagre Rs 50 per transaction in this segment.

"We feel that the government securities market is only expected to grow given the huge potential that it has. We are, therefore, weighing a couple of options one of which includes setting up a dedicated asset management company for the purpose. The discussions are at a preliminary stage as of now", said an STCI source.

The Bank of India has recently picked up a controlling stake in STCI which has a paid-up capital of Rs 500 crore. The Bank picked up 1,32,01,300 shares of STCI at a price of Rs 141.25 crore which has taken its stake to 28.37 per cent.

Sources said that the amount has already been brought in by BoI. STCI which is largest primary dealer has a 40 per cent share of the government securities market. It recorded a net profit of Rs 60.62 crore in 1996-97 as against a Rs 36.42 crore in the previous year. In the first five months of the current fiscal, the company recorded a gross profit of Rs 101.30 crore. It has been focussing its efforts on outright purchase of gilts which account for 35 per cent of the total outright turnover. STCI has also emerged as the biggest market maker in dated government securities and treasury bills.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.