Mutual fund (MFs) expect a flight of deposits from banks to funds following the rate cuts. Particularly, one-year bank deposits are likely to be shifted to debt funds which offer higher returns, experts said.
Banks have responded to the Reserve Bank of India 25 basis points cut in bank rate, repo rate and cash reserve ratio by cutting their lending as well as deposit rates.
Bank of Baroda yesterday cut the rate on long-term deposits to 6.5 per cent, lowest in the industry, while other banks are offering between 6.75 and 7 per cent on deposits of one year and above.
More From This Section
A short-term bond plan of a mutual fund which gives returns anything between 7 per cent and 9 per cent. Long-term bond funds which look at a two to three-year timeframe give returns close to around 18 per cent.
This is over two and a half times more than the return on long-term bank deposits.