Fund assets surge as banks tap liquid plans

Surplus liquidity in May, which resulted in overnight call rates plummeting to near-zero levels, saw bankers chasing mutual fund houses to park their excess money in liquid schemes, where returns are higher at around 8 per cent.

Most private and public banks parked between Rs 35,000 crore and Rs 40,000 crore in liquid schemes in the last two days of May as the rates in the overnight call market, where banks lend to each other, nosedived.

"It is a normal practice followed by the banks. When call rates drop to less than 1 per cent, it is a good arbitrage for them to put the surplus cash in liquid funds, which give returns of 6-8 per cent," Ashish Nigam, head, fixed income, DBS Chola Mutual Fund, said. 

A MATTER OF SURPLUS AUM of top 10 mutual funds (in Rs crore)
Mutual Fund Name	April	May	% chg
Reliance Mutual Fund	48,828	59,143	21.13
ICICI Prudential Mutual Fund	42,268	50,703	19.96
UTI Mutual Fund	35,517	40,070	12.82
HDFC Mutual Fund	31,511	36,147	14.71
Franklin Templeton Mutual Fund	24,510	26,276	7.21
Birla Sun Life Mutual Fund	18,616	23,719	27.42
SBI Mutual Fund	18,339	19,661	7.21
Kotak Mahindra Mutual Fund	12,894	16,723	29.70
Standard Chartered Mutual Fund	13,976	16,170	15.70
HSBC Mutual Fund	11,867	14,586	22.91
Total	2,58,325	3,03,198	17.37
Source: Association of Mutual Funds in India

The domestic mutual fund industry posted its biggest monthly growth of 18 per cent in May as its assets under management (AUM) crossed the Rs 4 trillion mark to Rs 4,14,171.61 crore, said the data released by industry body Amfi.

The funds garnered Rs 63,704.25 crore in May, of which around 10-12 per cent (around 7,500 crore) came from equity funds, while the rest came into the fixed income schemes, said industry analysts.

"It is very logical for the banks and the corporates to take a call on a product, where they get the biggest advantage. Currently, the liquidity with corporates and banks is too high and if banks had put this money into the call market, that would have given them negligible returns. So they chose liquid funds," said Sameer Kamdar of Mata Securities.

Nigam, however, says that the fund houses may not enjoy this money for a long time as banks would be deploying most of these money into securities auction and market stabilisation schemes (MSS), which is likely to take place in the second week of June.

"Currently, the excess liquidity in the system is to the tune of Rs 45,000 crore. Around Rs 21,000 crore worth auctions and deployments will happen this month. Besides, the corporates will need money for advance tax payments in June. So big redemptions will not be a surprise," he said.