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Our Market Bureau
Mumbai, Dec 3: Dedicated gilt funds are going to be a major vehicle of retail investment, says S S Tarapore, former deputy governor RBI, and chairman of the capital account convertibily committee. According to him, although the development of a government securities market is at the core of financial sector reforms, efforts at developing the market were inefficient.
Speaking at a function organised by Kotak Mahindra Mutual Fund, Tarapore said, "The problem of the secondary market gilts is that all the major participants move in unison.For a resilient secondary market it was necessary to have investors with different perceptions and needs. There is hope for such a situation emerging in India in the near future," he added. However, the real hope for development of the secondary market in gilts lies is a genuine development of the retail segment. "Gone are the days when people collected their interest warrants from RBI.It is in this context that the scheme of dedicated gilt funds become relevant," saidTarapore.
"The emergence of dedicated gilt funds opens up large vistas for the mass of small savers and this would have far reaching implications for the entire financial system," said Tarapore. He said these dedicated gilt fund should target individuals rather than corporates and institutions -- captive investors in government paper -- which will provide greater stability to gilt funds. Tarapore observed that it is this critical mass of people who are getting lower rates of return who would throng these gilt funds and should not be sidelined. In this, he asked the gilt fund managers to be vigilant and ensure that the withdrawal facilities have credibility. "The small individual investor needs that the stipulated waiting time for withdrawal is adhered to. This assurance would bring in hordes of people," he said.
Tarapore cajoled the government to allow the dedicated gilt funds to invest abroad as a means of hedging risk. "The authorities had earlier cleared the scheme for mutual funds investment abroad,but later developed cold feet. We are denying ourselves the benefit of portfolio diversification. India's official reserves are invested largely in government paper abroad and there is merit in allowing gilt funds to invest abroad but with stipulations," he stated. The stipulations suggested by Tarapore are that a dedicated gilt fund should not invest more than $ 50 million in government securities abroad and this should also be subject to a ceiling of 25 per cent of its corpus with a totally covered position at all times. "In this way, the gilt fund would be able to maximise its yields by assessing the Indian dedicated gilt yield with the foreign gilt yield taken together with the forward premia," he added.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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