MFs Turn Down To Fresh Investments In Liquid Funds

Mumbai: Mutual funds are declining big-ticket infusion into their very short duration schemes (liquid funds) in the face of a surfeit of such funds. The high inflow of funds has cut down the returns given by the liquid funds as most mutual funds are already sitting on surplus cash in the absence of avenues of investment. Mutual funds are in a quandary as acceptance of fresh funds would mean that existing investors are put to a loss, as the available returns will have to be shared among a larger pool of investors.

Most of the fund houses are sitting on cash because of the huge inflows and the size of the secondary bond market for trading being very small. This has taken the returns from liquid funds down to around 5.5 per cent compared to over 8 per cent previously. Asset management companies are trying to persuade investors to divert these inflows into liquid plus or short-term debt funds that have slightly longer duration than liquid funds. The secondary bond market is very small with trading of around Rs 500 crore daily whereas banks combined had surplus cash in excess of Rs 20,000 crore and hence they do not buy or sell bonds directly in this market.