The recent interest rate hike in fixed deposits by banks seems to have gained success in attracting investors towards them. Companies which normally used to invest their surplus funds in liquid plus schemes are now making a move towards short term fixed deposits of banks.
"Fixed deposit rates of banks have risen over 100 basis points in the past one month. So, some part of the money has moved into fixed deposits," said Ritesh Jain, head-fixed income, Canara Robeco Asset Management.
While short term bank deposits of three month maturity offer the depositor interest in the range of 9-9.5%, liquid plus schemes which normally nature in 91 days and above offer 7-7.5%, thus losing out to bank deposits by nearly 2%, report wealth and fund managers. Liquid plus schemes normally invest in debt instruments.
"One of the reasons for increased redemption from liquid plus schemes is the tight liquidity condition," said Joydeep Sen, senior VP, advisory desk, BNP Paribas Wealth Management . "Going by the central bank's last repo numbers the liquidity situation is severe compared with the other quarters. Even though the yields on money market instruments are high, liquid plus funds are not able to attract fresh money," he said.
Banks are on a spree to raise interest rates on deposits in order to make up for the borrowing and lending mismatch.