Retail investors are slowly moving money to liquid and ultra-short-term funds where they can earn as much as 6-6.5 percent after a spate of rate increases since early summer, reported Economic Times.
Ultra-short-term funds invest their money in debt and money market instruments with the portfolio duration of anywhere between 3 to 6 months. Also, there is low volatility and chance of a mark to market loss when investors come with a 3-month horizon.
“After two years, we are now asking fixed income investors to move money into liquid and ultra-short-term funds as banks have not matched the rate hikes,” said Anup Maheshwari, founder, Money Mantra, a mutual fund distributor.
Mutual fund investors had shunned debt funds as rising interest rates and volatility had led to poor returns in debt funds with investors earning just 2-3 percent in liquid funds.
However, most banks have not raised savings account rates at all, and have only marginally raised fixed deposit rates. This has made investments in these products unattractive now, point out distributors.
Balances in SBI savings bank earn a mere 2. 7%, and those in HDFC Bank earn 3%. Short tenure deposits of 45 days to 179 days in SBI earn 4%, while in HDFC Bank they fetch 4. 5%. In comparison, an investment in a liquid fund or an ultra-short-term fund can earn between 6% and 6.5%.