Calcutta, Jan. 5: Heavy redemption by institutional investors in December has considerably reduced the asset under management (AUM) of most mutual fund houses.

According to the data of Association of Mutual Funds of India (Amfi), the assets of all fund houses declined by Rs 16,255.15 crore to Rs 3,25,896.05 crore at the end of December from Rs 3,42,151.20 crore in November.

“The sharp fall in AUM across all mutual funds was primarily because of huge redemption in ultra short-term debt and liquid plans for institutional investors,” said Amandeep Chopra, a senior fund manager in UTI Mutual Fund.

He said institutional investors needed money to pay advance taxes, while banks sold units to meet the new RBI norms on cash reserve ratio.

“With the apex bank restricting its sale of government securities at the same time, commercial banks increased their purchases of securities identified for their statutory legal reserves. This requirement also led banks to offload their holdings in short-term mutual fund units,” he added.

Short-term debt and liquid plans, targeted exclusively at institutional investors and high net worth individuals, constitute a large chunk, as high as 50 per cent in many cases, of the fund houses’ total assets. However, not all mutual fund houses suffered a dip in their assets last month. Only those with a significant number of such short-term debt and cash plans suffered.

The worst hit was Lotus India, which recently entered the market with its initial product offering of debt schemes.

The assets of Lotus India fell by 33.35 per cent to Rs 604.33 crore at the end of December 2006. Lotus was followed by LIC Mutual Fund whose assets fell by 29.62 per cent to Rs 11,599.32 crore.