The Mutual fund sector has felt the pinch of outflows of over Rs 70, 000 crore in October as banks withdrew more funds.
Fund managers said redemptions have been witnessed largely from liquid and ultra-short term funds on the back of withdrawals from banks and non-banking financial companies (NBFC).
A Balasubramanian, CEO, Birla Sunlife AMC, said, ?Money has moved out to fund the subscriptions to the Coal India IPO and should flow back early next month. However, money could remain tight with the festive season almost here.
?The last time the mutual fund industry had witnessed such massive redemption was in the month of June, when banks lend money to telecom companies to bid for 3G spectrum licences. Government then had collected over Rs 1 lakh crore from the 3G and BWA auction. Banks off late have been facing a severe liquidity crunch resulting in an increase of 30-50 basis points in the yield on the one-year CDs to 8.55% levels in past few trading sessions.
Mahendra Jajoo, head, fixed income at Pramerica Mutual Fund, said, ?Liquidity has been tight over the past fortnight or so as has been seen in the higher borrowings by banks from the RBI?s repo window. ?
The Rs 15,000 crore Coal India IPO was subscribed 15.3 times with the QIB (Qualified Institutional Buyers) and HNI (High Networth Individuals) portion receiving massive interest for the issue.
?Besides the IPO factor, investors are keeping money for themselves as they are unclear about the future trajectory of interest rates,? said Dwijendra Srivastava, head?fixed income, Sundaram Mutual Fund. Higher interest rate could also lead to erosion of NAVs, which have promoted MFs to pull back funds, he said.