Surplus liquidity in May, which resulted in overnight call rates plummeting to near-zero levels, saw bankers chasing mutual fund houses to park their excess money in liquid schemes, where returns are higher at around 8 per cent. | |
| Most private and public banks parked between Rs 35,000 crore and Rs 40,000 crore in liquid schemes in the last two days of May as the rates in the overnight call market, where banks lend to each other, nosedived. |
| |
"It is a normal practice followed by the banks. When call rates drop to less than 1 per cent, it is a good arbitrage for them to put the surplus cash in liquid funds, which give returns of 6-8 per cent," Ashish Nigam, head, fixed income, DBS Chola Mutual Fund, said.
A MATTER OF SURPLUS
AUM of top 10 mutual funds (in Rs crore) | | Mutual Fund Name | April | May | % chg | | Reliance Mutual Fund | 48,828 | 59,143 | 21.13 | | ICICI Prudential Mutual Fund | 42,268 | 50,703 | 19.96 | | UTI Mutual Fund | 35,517 | 40,070 | 12.82 | | HDFC Mutual Fund | 31,511 | 36,147 | 14.71 | | Franklin Templeton Mutual Fund | 24,510 | 26,276 | 7.21 | | Birla Sun Life Mutual Fund | 18,616 | 23,719 | 27.42 | | SBI Mutual Fund | 18,339 | 19,661 | 7.21 | | Kotak Mahindra Mutual Fund | 12,894 | 16,723 | 29.70 | | Standard Chartered Mutual Fund | 13,976 | 16,170 | 15.70 | | HSBC Mutual Fund | 11,867 | 14,586 | 22.91 | | Total | 2,58,325 | 3,03,198 | 17.37 | | Source: Association of Mutual Funds in India |
|
| |
| The domestic mutual fund industry posted its biggest monthly growth of 18 per cent in May as its assets under management (AUM) crossed the Rs 4 trillion mark to Rs 4,14,171.61 crore, said the data released by industry body Amfi. |
| |
| The funds garnered Rs 63,704.25 crore in May, of which around 10-12 per cent (around 7,500 crore) came from equity funds, while the rest came into the fixed income schemes, said industry analysts. |
| |
| "It is very logical for the banks and the corporates to take a call on a product, where they get the biggest advantage. Currently, the liquidity with corporates and banks is too high and if banks had put this money into the call market, that would have given them negligible returns. So they chose liquid funds," said Sameer Kamdar of Mata Securities. |
| |
| Nigam, however, says that the fund houses may not enjoy this money for a long time as banks would be deploying most of these money into securities auction and market stabilisation schemes (MSS), which is likely to take place in the second week of June. |
| |
| "Currently, the excess liquidity in the system is to the tune of Rs 45,000 crore. Around Rs 21,000 crore worth auctions and deployments will happen this month. Besides, the corporates will need money for advance tax payments in June. So big redemptions will not be a surprise," he said. |
| |
