The Hindu Business Line : Call rates impact: Liquid funds may shine

Short-term funds will immediately start showing the returns. "Large portion of assets will be deployed in floating rate funds and fixed maturity plans as they have short durations," said Mr A. Balasubramanian, Chief Investment Officer, Birla Sun Life Mutual Fund.

A fund manager says that over the last week, liquid fund returns have risen by 40-50 basis points. In fixed maturity plans, the returns have gone up by 50-75 basis points over the last two weeks. He also pointed out that if the current call rates continue to move up the returns would be even higher.

"The current yield on bonds has increased. This will provide better returns for the short term funds," said Mr Ramanathan K., Head - Fixed Income, ING Vysya Mutual Fund.

However, they point out that the current lack of liquidity in debt funds may act as a deterrent.

"Mutual funds are facing redemptions as corporates and banks have pulled out owing to payment of advance taxes. Thus, there may not be an incremental investment in debt funds," said Mr Mahendra Jajoo, Head - Fixed Income, ABN Amro Asset Management.

The tight liquidity faced by mutual funds will not help them to deploy additional funds in short term funds in spite of the investment opportunity they provide currently, said Mr Sandeep Bagla, Head - Fixed income, Principal Pnb Asset Management Company.

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