Most mutual funds restricted their buying only to non-convertible debentures (NCDs) having daily put-call options and avoided certificates of deposit (CDs) and commercial papers (CPs) because they witnessed inflows only in liquid schemes, dealers said.
“Mutual funds received inflows only in their liquid schemes. Companies and banks were not keen on investing in any fixed maturity plans,” said a dealer at a mutual fund.
Fund managers have remained cautious over the liquidity situation because of big outflows witnessed a couple of months ago from companies and banks.
At best, mutual funds are buying small amounts of three-month papers. “Market participants were expecting a reverse repo rate cut, but with no action from the Reserve Bank of India (RBI), rates on all money market instruments rose slightly today,” said a dealer at a private mutual fund.
Several money market entities had expected RBI to cut the reverse repo rate and the repo rate at the earliest. However, a lack of clear cues on interest rates from the central bank prompted most fund managers to stay on the sidelines.
Today, Canara Bank was the sole issuer of one-year CDs and the investors were other banks.
Three-month CPs were quoted at 14-15 per cent, unchanged from Friday, while three-month CDs were at 9-9.25 per cent as against Friday’s 9.25-9.75 per cent.