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Cash plans get inflows as call drops below 1%

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Newswire18 Mumbai
Last Updated : Feb 05 2013 | 1:36 AM IST
The fall in call rate below 1 per cent amid abundant inter-bank liquidity had led to inflows of around Rs 15000 crore into liquid funds in the last two days, fund managers said.
 
However, fund managers expect returns of liquid funds to fall in a week's time due to easing of call money and in turn collateralised lending and borrowing obligation rates.
 
Instead of keeping idle cash in portfolios, fund managers are investing in CBLOs despite low rates. Some money is being deployed in three months to one-year corporate papers with 7.0-8.5 per cent yield.
 
"When call strips to a low level like this, banks have no other avenue to park money, so they invest in mutual funds," said K Ramkumar, head fixed income, Sundaram BNP Paribas Mutual Fund.
 
The fall in call money makes liquid plans attractive in terms of returns as they normally offer 7-8 per cent annualised return. Also, they are viewed as cash management tools for corporates as they can enter and exit from these schemes without paying any exit load.
 
Navneet Munot, debt fund manager, Birla Sun Life Mutual Fund said, "The fall in call (money rate) may lead fall in returns from liquid funds as deploying money in CBLO at 0.1-0.2 per cent would reduce return. Returns of liquid funds are likely to go down to 6 per cent from 8 per cent as cash component is earning less."
 
Today, the 1-day call rate closed at 0.50 - 0.60 per cent, compared with 1.00 - 1.50 per cent Tuesday.
 
CBLOs ended at a weighted average rate of 0.05 per cent, sharply down from 0.50 per cent Tuesday.
 
A fund manager from UTI Mutual expects CBLO rates to remain soft next week, as there are no major concerns on inter-bank liquidity.

 

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