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    Looking for mutual fund schemes to manage liquidity? Here is a pool of options for investors

    Synopsis

    Debt schemes are currently an attractive option for investors with a short-term outlook or looking for effective liquidity management, according to market expert Jayesh Faria. Short-term investors can consider ultra short-term funds with a minimum horizon of six months, liquid funds with a horizon of one to three months and overnight funds with a view of less than a month.

    Looking for mutual fund schemes to manage liquidity? Here are a pool of options for investorsGetty Images
    Investors with a short-term view or seeking effective liquidity management have options galore to choose from — notably a pool of income or debt-oriented schemes. Debt schemes are lucrative especially now as we are at the cusp of a stable interest rate cycle and could even see rate cuts by next year. To make the best use of the current conditions, investors can look to lock rates as they are at their peak now.

    For short-term investment or temporary parking of funds, investors can consider arbitrage funds, ultra short-term funds with a minimum horizon of 6 months, liquid funds with a horizon of 1-3 months and overnight funds with a view of less than 1 month, Jayesh Faria, Director, Regional Head – West, Motilal Oswal Private Wealth strategies told ET Markets.

    As the name suggests, short-duration funds are for those looking for short-term investments, said Nitin Rao, Head of Products and Proposition at Epsilon Money Mart.

    Rao said investment in any product must be based on an investor’s needs and requirements. Debt provides regular income as well as capital protection. Therefore, investors should evaluate a debt fund based on their investment horizon, their risk tolerance and investment objectives.

    Income or debt-oriented mutual fund schemes witnessed a whopping Rs 1.06 lakh crore inflows in April after the Reserve Bank of India (RBI) paused the repo rate in its April Monetary Policy announcement. RBI was the first major central bank to have taken this bold step, decoupling its stance with its major global peers, including the US Federal Reserve.

    April inflows were in sharp contrast to the March outflows, which witnessed an exodus of over Rs 50,000 crore.

    Attributing the near Rs 57,000 crore outflows as a usual phenomenon in March, Faria of Motilal Oswal Private Wealth said outflows in March are seen due to advance tax, bank obligations, reducing line of credit etc. by the corporate sector, majority of whom come back with their investments in April — as what was reflected in April’s inflows.

    “If you dissect data further out of 1.06 lakh crore inflows, a majority of nearly Rs 1 lakh crore came from all the above schemes put together (liquid fund, money market fund, overnight fund, ultra short duration and low duration fund), which clearly shows that investments were made for liquidity management,” the Motilal Oswal analyst said.

    The debt funds have been seeing outflows on a month-on-month basis. One more interest rate hike in the US is likely in June, when the Federal Open Market Committee (FOMC) meets. It is a popular view among experts that there could be a prolonged pause thereafter.

    “We are at the peak of the rate cycle and it is unlikely that any hike happens from here,” Arun Srinivasan, Head of Fixed Income at ICICI Prudential Life Insurance told ET Markets. He said locking the interest rates at current levels will be beneficial to investors.

    Debt funds have become attractive now as a result of this.

    Liquid funds are debt funds which make investments in fixed-income securities like treasury bills, commercial paper and other debt securities of very short tenure, thus providing liquidity. These funds do not come with a lock-in period. This category of debt funds received inflows of Rs 63,219.33 crore. Ultra-short duration funds and money market funds saw inflows of over Rs 10,000 crore in the month gone by.

    (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)



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    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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