Drop in bank deposit rates to make mutual funds attractive

Mostly corporates and institutional investors park their surplus cash in low-risk MF products

The reduction in interest rates on savings deposits is an opportunity for mutual funds (MFs) to popularise their low-risk debt offerings, says rating agency Icra.

A month ago, State Bank of India (SBI) announced a 50 basis points (bps) reduction in the interest rate on savings deposits, of less than Rs 1 crore million to 3.5 per cent. Following SBI's lead, many other public and private sector banks have reduced the interest rates on saving deposits.

"This is expected to create an opportunity for liquid mutual funds to tap into retail savings, by providing an avenue for parking surplus liquidity