public sector undertakings (PSUs) to invest their surplus cash reserve in mutual funds. The current norms allow only Navratna and Miniratna central public sector enterprises (CPSEs) to invest in public sector mutual funds. The Maharatna PSUs are not allowed to do so as the government banks on their huge pike of cash reserve to achieve various financial goals in short term.
SEBI says this will make available large chunk of funds for long-term investments and in the long run will help revive the economy. The proposals are also aimed at bringing down the Indian markets’ reliance on foreign investors. It may be mentioned here that close to half of the free-float market capitalization of Indian stocks comes from foreign investors.
SEBI's proposals also assumes importance against the backdrop of the government often falling back on the cash-rich PSUs whenever it runs out of cash or it fails to achieve the target of disinvestment. This has been the practice during the UPA government. If SEBI's proposals get government's approval, the practice will no longer be adopted.
The proposals are being actively considered by the government and a final decision could be announced in the Union Budget next month.
Nearly half investments from foreign institutional investors (FIIs) in Indian markets is from pension funds in different countries, while Indian pension funds are not allowed to invest in capital markets.
SEBI recommended that the government should allow all CPSEs to choose from any registered mutual funds, including those in private sector, for investing their surplus cash.
There are more than 250 CPSEs in the country and with an estimated collective cash and bank balance of close to Rs.3 trillion. Under the existing provisions, CPSEs had invested close to Rs.16,000 crore in public sector mutual funds as on 31 December 2013.
SEBI's proposals would also ensure parity among different investment products on tax and other parameters.
At present, there are about 45 fund houses in the country, with total assets worth over Rs.10 trillion, but fund mobilization has been tough in the last two years and SEBI says that their asset base has the potential to rise to Rs.20 trillion within five years.