The RBI move to hike cash reserve ratio (CRR) by 75 basis points is expected to increase demand for fixed income schemes which invest in
short-term debt paper. With short-term interest rates expected to strengthen following the central bank’s move and the equity market turning volatile, investors are likely to switch to short-term debt (money market) schemes such as ultra short-term funds and liquid schemes.
“Liquidity in the short term is going to be tight after RBI’s move and companies’ advance tax outflows in March. We see demand for short-term paper,” said A Balasubramanian, CEO, Birla SunLife Mutual Fund. RBI on Friday raised the cash reserve ratio — the minimum cash that banks need to keep with the central bank — by 75 basis points, a move that will drain out about Rs 36,000 crore from the banking system. The step is the central bank’s first major response to inflationary pressures that have gripped the economy.
Fund managers recommend investing in money market schemes of up to one-year maturity. “Yields on the short-term paper of three months to 1-year tenure are likely to harden by 25-50 basis points over the next couple of months. Investors could use this rise in rates this to lock in higher returns in such money market schemes,” said Nandkumar Surti, CIO, JP Morgan Asset Management. Money market schemes invest in instruments such as treasury bills, certificates of deposit and commercial paper, which are less susceptible to interest rate movements, unlike gilt mutual funds.
Mr Surti feels investors could wait till the Union Budget on February 26 to decide about investments in gilt funds or schemes that invest in government bonds. The government will reveal its borrowing programme for 2010-11 in the Budget, which will determine the supply of sovereign paper into the market.
Soruce : http://economictimes.indiatimes.com/markets/analysis/CRR-hike-may-take-investors-to-FIPs/articleshow/5515386.cms
short-term debt paper. With short-term interest rates expected to strengthen following the central bank’s move and the equity market turning volatile, investors are likely to switch to short-term debt (money market) schemes such as ultra short-term funds and liquid schemes.
“Liquidity in the short term is going to be tight after RBI’s move and companies’ advance tax outflows in March. We see demand for short-term paper,” said A Balasubramanian, CEO, Birla SunLife Mutual Fund. RBI on Friday raised the cash reserve ratio — the minimum cash that banks need to keep with the central bank — by 75 basis points, a move that will drain out about Rs 36,000 crore from the banking system. The step is the central bank’s first major response to inflationary pressures that have gripped the economy.
Fund managers recommend investing in money market schemes of up to one-year maturity. “Yields on the short-term paper of three months to 1-year tenure are likely to harden by 25-50 basis points over the next couple of months. Investors could use this rise in rates this to lock in higher returns in such money market schemes,” said Nandkumar Surti, CIO, JP Morgan Asset Management. Money market schemes invest in instruments such as treasury bills, certificates of deposit and commercial paper, which are less susceptible to interest rate movements, unlike gilt mutual funds.
Mr Surti feels investors could wait till the Union Budget on February 26 to decide about investments in gilt funds or schemes that invest in government bonds. The government will reveal its borrowing programme for 2010-11 in the Budget, which will determine the supply of sovereign paper into the market.
Soruce : http://economictimes.indiatimes.com/markets/analysis/CRR-hike-may-take-investors-to-FIPs/articleshow/5515386.cms
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