Issuances of short-term money market instruments fell today as mutual funds avoided purchases on fears they would start facing redemptions for corporate advance tax payments from next week, dealers said.
“Mutual funds refrained from buying today as most of them preferred to remain on the sidelines ahead of advance tax outflows,” said a dealer with a mutual fund.
Generally, companies and banks redeem their liquid fund investments to pay quarterly advance tax and improve their quarter-end financials.
The deadline for payment of corporate advance tax for the second quarter of 2009-10 (Apr-Mar) is Sep 15.
Mutual funds are also not keen on investing currently as most of them will now start investing in seven-day to 14-day non-convertible debentures to fund Oil India’s IPO.
“Banks too are not issuing certificates of deposit (CDs) as liquidity is still ample in the system. Banks are also only preferring to issue papers maturing beyond March,” said a dealer with a state-owned bank.
Today, three-month CDs were quoted at 3.80-4 per cent, unchanged from Friday, whereas three-month commercial papers (CPs) were quoted at 4.30-4.50 per cent, also flat versus Friday’s levels.
