Cash plans' assets down 19.5%

Assets under management of top 15 liquid schemes declined 19.5 per cent in August as banks withdrew investments owing to surge in call money rates.

Meanwhile, the entire industry witnessed a near 19 per cent decline in cash plan assets to Rs 1.104 trillion, compared with a 48.6 per cent growth in July, when call money rates hovered below 1 per cent.

The rise in call money rate in August was the result of the Reserve Bank of India's steps to drain out excess liquidity. RBI hiked banks' cash reserve ratio 50 basis points to 7 per cent from August 4 and removed the Rs 30 billion ceiling on reverse repo tenders from August 6, in its bid to rein in liquidity.

Call rate hit an intra-day high of 50 per cent on August 21, and ended at a near 5-month high of 12-15 per cent. Owing to this, banks started preferring call money market to liquid plans, which gave an annualised return of 7-7.5 per cent normally.

A fund manager with Reliance Mutual said, "It is a normal trend which would have been observed across the industry. When the overnight rate was below 1 per cent, mutual funds received inflows from banks. This (bank) money, went out after call rate rose (in August)."

Corporates normally use liquid funds to manage cash in the short term, since they do not levy any entry or exit loads.

Barring HDFC Cash Management Savings Plus and HDFC Liquid Fund, rest of the schemes in the top 15 list recorded asset decline.

ICICI Prudential Liquid Plan's assets dropped marginally. The worst hit was SBI Mutual's Magnum InstaCash Fund that suffered almost 65 per cent asset erosion followed by Kotak Liquid and HSBC Cash Fund, which registered nearly 39% and 38% asset fall, respectively.