Fund houses lap up CDs

Mutual funds were buying certificates of deposit (CDs) and non-convertible debentures (NCDs) as they received inflows from banks into their liquid schemes and fixed maturity plans (FMPs), dealers said.

Mutual funds’ liquidity has improved this month compared with that of October after measures taken by the Reserve Bank of India (RBI). In October, mutual funds were facing a cash crunch due to redemption from banks and companies.

In a bid to boost liquidity in the system, RBI had last month cut banks’ Cash Reserve Ratio (CRR) by 350 basis points to 5.50 per cent. It also introduced a 14-day special repo window for banks to borrow funds exclusively to lend to mutual funds.

“Mutual funds are facing fewer redemptions this month and receiving only marginal inflows into their schemes. So, they have restricted their buying to tenures where they received inflows,” said a dealer of a private mutual fund.

Rates have remained unchanged since Friday as liquidity in the banking system is seen improving. Liquidity has improved further as the second stage of a 50-bps cut in CRR took effect from Saturday.