Banks are once again turning to mutual funds for better returns in the face of plunging call money rates. The development also signifies a nascent confidence of the banking sector to invest in the non-government sector. Renewed bank investments had pushed up assets under mutual funds? management by nearly 10% in January 2009.
Of the Rs 27,903 crore rise in assets under management (AUM) of mutual funds last month, almost 70% came from the banking sector. The flow had been into the liquid and money markets funds, say fund managers. Helped by this, AUM of the mutual fund industry increased by Rs 4,60,948.99 crore compared to Rs 4,21,116.48 crore in December, 2008. This, despite the industry launching just about 10 new schemes in January.
Commenting on the new trend, CEO of a leading asset management company said, ?In the past two months, we are witnessing huge inflows from banks, rather than corporates which usually park their funds in various liquid and liquid plus schemes of various fund houses.? Equity funds saw an outflow to the extent of Rs 338 crore.
Waqar Naqvi, chief executive, Taurus Mutual Fund, says, ?After December 2008 and in January this year, banks are again entering the mutual fund schemes and parking their money.? According to Naqvi, the key reason for banks parking their funds in MFs is the attractive returns given by the liquid and liquid plus schemes.
?During the last year we had seen call rates touching 20%, which has significantly come down to over 4-4.5% now. The liquid and liquid plus schemes provide good liquidity and returns of over 7.5-8%. That is the major reason why banks are opting for these schemes,? added Naqvi. December had seen an outflow of Rs 4,342 crore from liquid funds.
Treasuries with various private sector banks say currently MF schemes are providing them good returns, prodding them to park their money in MF schemes. ?Many banks are placing their money in the MF schemes as interest rates are falling and MFs provide them with better returns in such a situation,? a treasury official with a leading private sector bank said. He also pointed out that the private sector banks account for a large share of the monies parked with mutual funds.