MFs buy short-term paper

Trade volumes in the secondary market rose as mutual funds preferred to remain cautious and deploy limited funds in the shorter tenure papers, dealers said.

“Most mutual funds are preferring to hold cash. In case of some incremental inflows in liquid schemes, they are buying limited quantum in the secondary market,” said a fund manager with state-owned mutual fund.

Mutual funds are likely to remain cautious this month as they may face redemptions from banks and companies due to corporate advance tax payments. “It is better to buy some small quantum in the secondary market for papers maturing in one-month, rather than investing in one-year papers in the primary market,” said a fund manager with a private mutual fund.

Most banks are keen to issue one-year certificates of deposit (CD), while mutual funds are demanding papers only up to three-month maturity. Today, some state-owned banks and corporate houses sold papers up to June maturity in the secondary market to mutual funds.

Rates eased slightly today on expectation that Reserve Bank of India may cut interest rates in March. CDs maturing in December were dealt at 6.70-6.80 per cent today compared with 6.80-6.85 per cent on Monday.