Mutual funds’ investment in bank certificates of deposits dipped sharply by 67 per cent last month to ₹53,000 crore against ₹1.59 lakh crore in same period last year, largely due to fall in interest rate on this debt instrument.
In fact, the overall mutual funds’ debt schemes’ investment in bank certificates of deposit has fallen to 3.2 per cent in February from 10.4 per cent logged in the same period last month, according to Care Rating research report.
The average rate of interest on CDs has fallen by 2 percentage points in last one year to 4.2 per cent last month against 6.2 per cent in February 2020 with the excess liquidity unleashed by the RBI to stimulate economy marred by the Covid pandemic.
G Pradeepkumar, Chief Executive Officer, Union Asset Management Company, said the issuance of certificates of deposit by banks has come down considerably in last one year as they are flush with funds and papers issued by few banks are also coming with lower interest. Debt funds, in general, are investing in the papers issued by corporates and government are the active borrowers in the market, he added.
Overall debt fund inflows last month was at ₹1,735 crore against outflow of ₹33,409 crore in January while debt fund AUM remained almost stagnant at ₹13.74 lakh crore.
Debt schemes accounted for the largest share of AUMs at 47 per cent, followed by equity at 31 per cent and hybrid schemes at 11 per cent while solution-oriented and other schemes accounted for the rest, said the report.
Most debt has taken fancy to corporate debt papers with investments increasing by ₹660 crore to ₹3.73 lakh crore. This segment includes floating rate bonds and non-convertible debentures, etc.
Debt fund exposure to NBFCs halved to ₹1.6 lakh crore in February against ₹2.3 lakh crore logged in September, 2018 when the series of default by corporates rattled the market. Mutual fund investment in commercial papers of NBFC dipped to ₹72,000 crore against ₹1.26 lakh crore.
Equity funds’ exposure
Among equity funds, the top six sectors accounted for over 61 per cent share of equity funds worth ₹8.9 lakh crore.
Deven Mistry, Research Analyst, Motilal Oswal, said mutual funds also showed interest in metals, oil and gas, utilities, cement, NBFC, capital goods, real estate, retail and infrastructure while they were underweight on technology, healthcare, consumer, telecom and automobiles.