MFs join retail investors in flight to FDs

Retail investors are not the only ones to be moving to bank fixed deposits.

Retail investors are not the only ones to be moving to bank fixed deposits,as higher returns and better credit quality has also forced the mutual funds (MFs) to consolidate their allocation into banks and fund allocation by MFs has risen sharply in bank certificate of deposits (CD) and fixed deposits over the last one year. Even the equity fund allocation has been skewed into banking stocks.

According to the MFs fund deployment data for the month of July,released by Sebi on Thursday,while the total debt asset under management (AUM) for MFs have gone up by 14.5 per cent over the last one year to hit Rs 512,101 crore in July 2011,the total allocation to bank CDs have risen from Rs 207,717 crore (46 per cent of the debt AUM) in July 2010 to Rs 279,103 crore (54.5 per cent of the debt AUM).

The bank FD exposure too has gone up significantly from Rs 13,233 crore (2.9 per cent) in July 2010 to Rs 31,219 (6.1 per cent) crore in July 2011.

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Liquid funds have grown significantly over the last one year and bank CDs which are high on credit quality and liquidity witnessed a significant rise in interest rates over this period and hence the higher allocation to them, said Amitabh Mohanty,head of fixed income at Reliance Mutual Fund. Also,higher FD rates in the period has led MFs to do their cash management through short dated FDs.

While the exposure to banks have gone up,MFs have reduced their exposure in corporate debt to NBFCs and it has come down from over Rs 30,262 crore (6.75 per cent) in July 2010 to Rs 17,000 crore (3.45 per cent) in July 2011. The corporate debt to Others (other than real estate and NBFCs) have also come down from Rs 43,781 crore (9.8 per cent) to Rs 31,398 crore (6.1 per cent) in the same period.

Even on the equity side,fund allocation by MFs into banking stocks has risen from Rs 30702 crore (14 per cent of the equity AUM) in July 2010 to Rs 34,090 crore (17 per cent) last month. There has been growth in allocation even though the equity AUM in the same period fell by Rs 17,763 crore or 8.8 per cent to hit Rs 201,023 crore. The capital goods sector has been the biggest loser with the total allocation going down from 6.8 per cent last year to 2 per cent in July 2011.

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Retail investors

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