Mutual funds flock to the CD market

Rates eased by 10-15 basis points On Wednesday because mutual funds continued to buy certificates of deposit (CDs) on inflows in their liquid schemes, dealers said.

“Mutual funds have received inflows in liquid schemes and there is a liquidity overhang. So most mutual funds were buying shorter tenure CDs On Wednesday,” said a fund manager with a private mutual fund.

Since last week, mutual funds flush with inflows coupled with surplus cash they were holding on redemption concerns, have stepped up purchases.

“We had kept some cash aside for corporate advance tax as we were cautious regarding redemption. However, we did not face huge redemption and are investing in CDs currently,” said a dealer with a mutual fund.

On Wednesday, banks placed CDs worth Rs 1,000 crore, up from Rs 650 crore on Tuesday.

Banks were also keen on issuing CDs On Wednesday to refinance CDs that were issued earlier.

“Banks are refinancing their CDs, and as it is the first quarter end, we would prefer to boost our deposit base,” said a dealer with a state-owned bank.

On Wednesday, three-month CDs were dealt at 3.50-3.60 per cent, compared with 3.55-3.65 per cent on Tuesday.