The Hindu Business Line : Fresh allocations to short-term plans mooted

Investment advisors are recommending fresh allocations to short term plans (STPs) offered by asset management companies following the latest credit policy, marked as it was by an increase in cash reserve ratio (CRR).

STPs are expected to gain from the relatively higher spreads existing between three month and one year CP/CD rates, a possibility that is prompting financial planners to advocate investments in this category, especially when money market yields rule firm.

While a fairly wide range of short-term products are available, it needs to be seen whether investors are actually taking to the new dynamics in the money market and investing in them in larger numbers, fund circles say, adding that the next few rounds of (month-end) AUM statistics will be an indicator.

Mr Sameer Kamdar, Head – MFs, Mata Securities, felt investors may consider taking fresh exposure to these plans “after the first week of August as the money market yields are expected to stabilise then”.

Liquid funds

Investors’ stance on liquid funds will be particularly tracked after the latest RBI move, it is felt. In this connection, sources also underline the performance recorded by the Liquid Plus products in recent times. These funds, incidentally, are taxed at a lower rate of 22.66 per cent for corporates and 14.16 per cent for individuals – which stand in contrast to 28 per cent-plus for liquid funds irrespective of the characteristics of the investor concerned.

It is also noted that the market will see call rates going back to ‘normal’ levels, roughly 6 per cent. “This is also likely to push up yields in the short end of the yield curve,” Mr Kamdar noted, adding that the CRR hike (to 7 per cent) is likely to absorb liquidity. However, it is not that the “abundant liquidity situation” will not persist in the near term, it is felt.

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