MRC: Mutual Funds Cut Investment in Banks

EghtesadOnline: The Majlis Research Center, affiliated to Iran's parliament, has recommended the mutual funds operating in the country's capital market to reduce their share of investment in banks in favor of bond market.

News ID: ۷۸۵۹۳۸

07 February 2021

A mutual fund is a type of financial instrument made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets.

The research center advised funds that "maximum 30% of assets be invested in banks and credit institutions in deposits and buying banks' certificate of deposits," the report published on the MRC's website said.

Citing data released by the Securities and Exchange Organization, the MRC said that the total value of assets of 86 investment funds operating at capital market stood at 2,600 trillion rials ($10.8 billion) by the end of eighth month of current calendar year on Nov. 20.

As for the asset composition of funds, they 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 (CD) of banks, respectively accounting for 9.9%, 41% and 45% of the their total asserts.

In addition, about 85 trillion of the funds' asset was in cash, representing 3.3% of the total.

CD is a product offered by banks and credit institutions that provides an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time.

The parliamentary think tank points to significant increase in the volume of bonds issued by the government, suggesting that the investment funds resources be tapped to have a bigger share of government bonds in their portfolios.

"If the share of funds investment in banking deposits decline from 45% to 30%, funds worth 400 trillion rials will go to Islamic bonds," the MRC said. "This will go a long way in financing the government budget needs, private sector companies and municipalities".

Back in December, the SEO, the stock market regulator, 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.

Since the beginning of current fiscal year the investment funds along with banks have contributed a lot in funding the budget deficits by buying bonds issued by the government.

The CBI has sold more than 1,000 trillion rials ($4 billion) in government bonds via regular bond auctions on weekly basis. As per data released by the Economy Ministry, more than 55% of buyers in the past ten months were banks and investment funds and the rest stock investors.