Mutual funds’ investment in bank certificates of deposits declined sharply by 67% last month to Rs. 53,000 crore against Rs. 1.59 lakh crore in same period last year. It caused largely due to fall in interest rate on this debt instrument.
According to Care Rating research report, the overall mutual funds’ debt schemes’ investment in bank certificates of deposit has fallen to 3.2% in February from 10.4% logged in the same period last month.
The average rate of interest on CDs has fallen by 2 percentage points in last one year to 4.2% last month against 6.2% in February, 2020 with the excess liquidity unleashed by RBI to stimulate economy marred by the COVID-19 pandemic.
G Pradeepkumar, Chief Executive Officer, Union Asset Management Company, has stated that the issuance of certificates of deposit by banks has come down considerably in last one year as they are flush with funds and papers issued by few banks are also coming with lower interest. Debt funds, in general, are investing in the papers issued by corporates and government are the active borrowers in the market.