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The mutual fund industry sees substantial erosion in liquid and liquid plus schemes offered by it, if SBI chief Pratip Chaudhuri has his way to offer fixed deposits of three days.
On Wednesday, Chaudhari told Business Line that he was for fixed deposits of three-day duration as the current minimum tenure of seven days hampered banks from tapping the surplus funds of companies. These companies prefer to park their surplus in liquid/ money market schemes of mutual funds because of the flexibility of no lock-in period and redemption in 24 hours, he said.
Liquid funds are debt mutual funds which invest in short-term market instruments such as Government securities, treasury bills and call money market. These debt mutual funds seek instruments up to a maturity of 91 days. Corporates, high networth individuals and charitable institutions invest in them for the ultra short-term.
The MF industry has a total of Rs 8.13 lakh crore of assets under management (AUM) of which about Rs 2.04 lakh crore is in liquid and liquid plus schemes as of February.
Market men said institutional investors switch schemes even if they get an extra 15-20 basis point return on such tenures of less than a week as their investments are high. Returns are between eight and nine per cent on an annualised basis. Fund houses earn between 10 and 15 basis points from their liquid/ liquid plus schemes.
Fund houses floated by banks own over a third of the 2.04 lakh crore AUM in the liquid funds category Given the statutory requirement of banks such as CRR/SLR and priority sector lending, they were unlikely to offer higher returns than the MFs, the marketmen said.
Vikaas M Sachdeva, CEO, Edelweiss Mutual Fund, felt said it would be curtains for the liquid funds if banks moved in to tap the segment.
“It goes without saying that there will be a flight of AUM from the MF industry. However, it will be restricted to those schemes which have an average tenor of less than seven days,” said Nilesh Sathe, Chief Executive Officer, LIC Nomura Mutual Fund.
Further, the flight of funds would happen only if the interest rate is comparable to liquid schemes. People who want a guaranteed rate of return would be more comfortable with an ultra short-term bank deposit, he added.
Akshay Gupta Managing Director, Peerless Funds Management, said the difference in interest rates between liquid/ liquid plus and ultra short-term bank fixed deposits are very high. .
shanker.s@thehindu.co.in
raghavendrarao.k@thehindu.co.in
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