Mumbai: The liquidity crunch in the wake of the ILFS fiasco has resulted in money flowing into liquid schemes of large mutual funds owned by banks.
HDFC Mutual Funds liquid scheme got roughly Rs 30,000 crore in October so far, said a top executive.
This is about 50-60 per cent of the total flows of around Rs 60,000-70,000 crore into liquid funds during the month, according to unofficial estimates.Milind Barve, CEO of HDFC Mutual Fund, in a conference call with investors after the September quarter results, said average assets under management (AUM) in HDFC Liquid Fund moved up to Rs 75,000 crore to Rs 80,000 crore from Rs 45,000 crore to Rs 50,000 crore in September.The liquid mutual funds category had assets under management of Rs 3.95 lakh crore as of September 2018.
They saw outflows of Rs 1.5 to Rs 1.7 lakh crore in September as corporates withdrew for advance tax payments, and fears of liquidity drying up after ILFS defaulted on payments to some of the creditors.Usually, money flows out of liquid schemes in September and moves in again in the first week of October.
This time, however, only half the money has come back so far with corporates preferring to keep it with bank fixed deposits of short durations as they are worried about the holdings of debt mutual funds.The chief executive of a rival domestic fund house said money is returning only to a couple of large fund houses as there is a flight to safety.Treasury heads can justify only a brand like HDFC to their board of directors who dont want to take any risk at this point of time, the CEO said.
Out of the Rs 1.5 lakh crore that was redeemed from liquid funds in September, Rs 70,000 crore has come back in October and half of it has gone to HDFC AMC, he said.Liquid funds are used mainly by corporate investors to park surplus funds for short period of time and to manage their cash flows.
Some retail investors and HNIs use this as part of their emergency fund corpus or to invest into equity funds in a staggered manner.
Corporate investors typically use this to park money for short periods of time typically 1 day to 3 months.Corporate houses want to de-risk themselves and be invested only with large funds which hold good quality paper so that there are no liquidity issues, said Kaustubh Belapurkar, director ( fund research), Morningstar India.They invest in very short-term market instruments like treasury bills, government securities and call money.
As per data from Value Research, in the last one year, liquid funds have given a return of 6.69 per cent.