Prajna Capital - An Investment Guide

REFLECTING tight liquidity conditions in the money market, banks have pulled out close to Rs 38,000 crore in the last four months from various mutual fund ( MF ) schemes. According to the latest Reserve Bank of India ( RBI ) figures, total MF investments dipped to Rs 27,691 crore as of Feb 12 09 from a high of Rs 59,700 crore as of May 08. Officials at fund houses point out that most of the MF investments by banks are in liquid or liquid-plus schemes, which almost work as a current account as far as liquidity is concerned and yet earn a return, which the banks do not earn in a current account. Banks often park surplus funds in such schemes that helps them earn some extra return and yet retain the liquidity of the funds. The tightening domestic liquidity in recent times has been primarily due to advance tax outflows and forex intervention. However, this is likely to be transient in nature once the quarter-end pressures are off and due to the liquidity measures undertaken by RBI. L...