Fixed Income Funds Forced to Increase Investment in Shares

The new move is in line with a series of measures taken in recent months to prop up the stock market and boost the demand side. 

As per a decision published late on Sunday by Securities and Exchange Organization, the stock market regulator, fixed income investment funds are obliged to invest at least 15% of their financial resources to buying stocks, stocks rights, option contracts and commodity-based certificate of deposits. 

The funds, however, are not allowed to spend more than 25% of their resources for buying shares, according to SEO's decision, the Securities and Exchange News Agency reported. 

Accordingly, investment funds are obliged to raise their investment in shares in phases, of which the last is to end by March 20, 2022.  

In the first phase, investment funds have to allot 3% of their portfolio to shares by the end of the current fiscal year (March 20, 2021), which means they have to inject 90 trillion rials ($360 million) into the bourse to quench the buy side's thirst for liquidity. 

By the end of the deadline in March 2022, investment funds have to increase their quota of shares by 3% each quarter until it reaches the minimum 15%. 

For every percentage point increase above the minimum, investment funds are allowed to reduce their investment in bonds by 2 percentage points. 

The funds are also banned from investing more than 30% of their assets in bonds issued by the government. 

Prior to this, fixed income investment funds, along with banks, were the main buyers of government bonds that were issued in large amounts to fund the fiscal budget deficit.  

Citing SEO's data, Majlis Research Center said that by the end of the eighth fiscal month on Nov. 20, investment funds had invested 258 trillion rials in stocks, 1,068 trillion rials in bonds and 1,188 trillion rials in bank deposits and buying certificate of deposits of banks, respectively accounting for 9.9%, 41% and 45% of their total asserts. 

In December, SEO announced new caps for investment funds operating in the stock market. 

The ceiling was set at 500 trillion rials ($2 billion), up from the previous 300 trillion rials giving the funds more operative leeway. New rules were passed by the High Council of Securities and Exchange, the top stock market policymaker. 

As per the new measures, there are no restrictions on creating new fixed income investment funds by banks. Lenders can set up more than one investment fund.

Tehran’s share market started to plunge in mid-August after making historic gains. The benchmark of Tehran Stock Exchange, TEDPIX, grew close to 300% in less than five months before diving deep into the red.

Market observers blame major shareholders, institutional traders and those seemingly with inside information for the downturn saying they increased offers when share prices reach their peak. 

With the obvious aim of propping up the sluggish share market and boosting demand, fixed income investment funds are also obliged to invest a big part of their resources in Justice Shares. 

Justice Shares are shares of government-owned companies given free of charge to the six lowest income deciles 15 years ago. Shareholders were not allowed to sell the shares until last May.