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IL&FS effect: Investors shift money to overnight funds, AUM surges 3-fold

Category could emerge larger as Sebi seeks ways to reduce risks in liquid schemes

Jash Kriplani  |  Mumbai 


Overnight funds’ assets under management (AUM) saw a three-fold jump in October as investors turned to the side of caution following the group default in September. Experts said are seeing such elevated levels of interest after a long time.

They added that the last time this category saw such a sharp rise in inflows was in 2013, when taper tantrums triggered volatility in the currency and

According to industry sources, this category can emerge as a much larger one going ahead, as the Securities and Exchange Board of India (Sebi) may mandate money for less than 7 days to be put in overnight instruments such as CBLO, and not

In October, the of rose to Rs 122 billion from Rs 38.9 billion in the previous month. All the four players in the category saw their overnight schemes’ surge at exponential rates.

The HDFC Overnight Fund’s was up three-times to Rs 92 billion, while the saw its AUM surge 1.5x to Rs 6.8 billion. The sharpest gain was seen by as it jumped 11-fold to Rs 6.4 billion, from a lower base of Rs 0.58 billion as of September.


Experts say corporate treasuries are seeking alternatives to manage their own position as liquid schemes’ credit exposures have come under scrutiny. “After the issue, investors have become extra cautious. They don’t want money kept aside for requirements exposed to that can be attributed to the Investors don’t mind the lower yields overnight schemes offer versus liquid schemes, as their stance has been that of ‘safety-first’,” said Alok Singh, chief investment officer at

Industry sources said that even though such offer close to 100 basis points (bps) lower yield, investors don’t mind compromising on returns right now, and are partially moving money from liquid to overnight schemes.

As these schemes are 100 per cent invested in the collateralised borrowing and lending obligation (CBLO) market, these are hardly considered to carry any risks. The can have maturity of a day, so they offer high They are also relatively safe as borrowers are required to park Government securities as collateral.

To cater to this shift in sentiment, and floated their own overnight funds in the first half of November.

At the end of FY13, AUM levels in overnight funds were up 3x to Rs 27.2 billion, as investors moved money away from amid hardening yields. While spike in yields has been the common cause of concern in both the cases; the trigger back then was a foreign one as US Fed indicated unwinding of quantitative easing.

First Published: Wed, November 21 2018. 22:27 IST