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Fund companies eye dot-com kitty

Aabhas Pandya

The withdrawal of tax break under section 54EA may have wiped off big-ticket money but fund marketers have not given up yet. In a bid to spruce up assets under management, fund houses have been chasing dot-coms that receive oodles of cash from venture capitalists. And although inflows have slowed down in the last two months as most dot-coms struggle to survive and VCs turn off the funding taps, fund sources say money is still trickling in.

"Investments from dot-coms became a big avenue for mobilisation by funds earlier in the year. For instance, if a startup receives Rs 300 million from a VC, it is not going to deploy the entire money in one go. Thus, we were vying for that bit of the moolah, which will be required, say six-eight months down the line,'' says a regional head at Alliance Capital. "The trend of investments by dot-coms is still there but the quantum has surely gone down,'' adds Sandeep Mahajan, Zonal Head, Sun F&C Mutual Fund.

Industry sources also point out that it is not only the core businesses where dot-coms have ended up burning truckloads of cash. A few of them landed their investments in equity and debt funds at the peak of the ICE rally, but ended with deep holes in their pockets. No wonder, the VCs have not bestowed upon them the next round of funding.

"Some of these companies had invested in equity funds in March and April but with markets on a consistent slide, they lost heavily. Then, some investments were shifted to debt and gilt funds to cut losses but the hardening of interest rates took a toll there as well. Now, money is essentially coming to liquid funds,'' says the head of a Delhi-based distribution company.

For instance, the investments by Egurucool.Com are much talked about in the fund industry. The dot-com had the misfortune of putting money in a few debt funds just before the interest rate hike on July 21 and no wonder, ended with a loss. "While they did suffer some losses on investments, the portfolios have been re-aligned,'' said a source familiar with the dot-com's investments.

However, unlike investments under 54EA that attracts a lock-in of three years, money put by dot-coms is essentially short-term in nature. "Most of the money from dot-coms is coming in liquid funds. However, given the circumstances, even these short-term investments are welcome as the AMC at least earns some management fee,'' says a market intermediary. Thus, even though most dot-coms are hurtling towards extinction, they have at least given a brief respite to the beleaguered fund industry.

Source: Value Research

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