Mumbai, Oct 29: The RBI’s specific policy changes vis-a-vis mutual funds is expected to popularise Gilts among retail investors and impart depth to the `rate swap and forward rate agreements markets or the rupee derivatives market. Besides, the central bank has made life easier for money market mutual funds by bringing them under Sebi regulation.

Fund managers see the cheque-writing facility extended to Gilt funds as a significant move that will bring in more retail participation. ‘‘This is part of an overall strategy to promote Gilts among retail investors. This is a very positive news,’’ says Shekhar Sathe, CEO, Kotak Mahindra Mutual Fund, which was the first MF to launch a Gilt fund in the country.

Nilesh Shah, Chief Investment Officer of Templeton Mutual Fund sees a big chunk of retail money pouring into Gilt funds. ‘‘There are six or eight Gilt funds which have already created a retail market for such funds. All the Gilt funds together would have collected over Rs 1000 crore, of which about Rs 500 crore could have come from retail accounts.

Sathe of Kotak MF, whose K-Gilt fund’s collection has already touched the Rs 350 crore mark, is now keen on marketing the fund to the retail investor. ‘‘Along with our two other funds (K-bond and K-balance) we will now take the Gilt fund to the retail investor.

The RBI had earlier allowed the cheque writing facility only to MMMFs. This will now cover Gilt funds as well as liquid income funds. However, for the latter the funds should be predominantly (not less than 80 per cent of their corpus) invested in money market investments.

Another significant measure announced by the central bank is the permission for mutual fund to participate in FRAs/IRS. Mutual Funds, in addition to corporates, can undertake FRAs/IRS with banks, primary dealers and financial institutions. This facility for MFs is for the purpose of hedging their balance sheet risks, though this cannot be used for market making in these instruments.

Explains Shah of Templeton MF, ‘‘This will provide depth to the interest rate swap market. At present the main participants, banks and FIs, are net borrowers. MFs will enter the market as net lenders.’’

The rupee derivatives market was kicked off in April has a notional principal amount outstanding of around Rs 1700 crore. ‘‘This is an enabling provision and many funds would not be in a position to use the facility of rupee derivatives immediately as their documents may not have the provision to do so,’’ says Sathe. Most of the new funds, including Kotak, have this provision in their offer documents.

RBI has also changed the regulatory mechanism for money market mutual funds. These funds are at present governed by RBI guidelines.

These will now come under the regulatory framework of Sebi on the lines of other mutual funds. Once the Sebi regulatory framework for MMMFs is in place, RBI would withdraw its guidelines and advise banks and financial institutions that their MMMFs would be governed by Sebi. However, banks and financial institutions planning to set up MMMFs have to take clearance from RBI before approaching Sebi for registration.