From the cut-off date in May this year, MFs participation in the call markets will be restricted to 85 per cent of their average daily lending in the call markets, during the financial year ending March 31, 2001. This step along with the cancellation of 14 day and 182 day treasury bills auction will create problem for non-bank entities to manage liquidity. The restrictions imposed on call money transactions by MFs in the credit policy will have a sure shot impact on yields and liquidity management by MFs. Most of the Mutual Funds will now have to focus much more on short-term repo transactions, Mumbai Inter bank offer rate linked instruments and other short-term debt instruments with a daily purchase and sale option. As if to neutralize this impact on Mutual Funds, the RBI has mooted the idea of setting up a clearing corporation that could kick-start the repo market. Thus most Mutual Funds expect the removal of their participation in call markets to be synchronized with the development of deep Repo market through the creation of a Clearing corporation of India. But the fact remains that MFs would continue to have problems deploying short-term surpluses/funds the clearing corporation starts functioning.

Though promising easy liquidity and a positive stance towards interest rates, the RBI has nevertheless not ruled out the possibility of quick reversal its current policy thus signifying its intents to keep in tune with external changes in the international monetary system.

The other measures that could have a marginal impact on Mutual Funds is the measure to allow banks to offer differential rates of interest on deposits to VRS optees and senior citizens. However this might not have a major impact, as banks cannot afford to offer much higher rates than what they offer on normal deposits due to the eventual impact on their margins.