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Overnight schemes gain traction as Sebi tightens norms on liquid funds

Fund managers say risk-reward is not in favour of liquid schemes. “Portfolio yields on liquid schemes are about 5.7 per cent, which is marginally higher than overnight schemes’ 5.2 per cent,” mentioned one fund supervisor. From June to August, in a single day schemes’ common AUM moved from Rs 12,574 crore to Rs 20,717 crore; a leap of 64 per cent. This coincided with Sebi’s transfer to introduce a slew of tighter norms on liquid schemes. Fund managers mentioned that as these norms get carried out, in a single day schemes are prone to turn out to be even bigger.


“While returns on liquid schemes will moderate further due to mandatory allocation to less-risky govt papers, MTM valuations can lead to episodes of volatile returns,” mentioned one other fund supervisor. Sebi norms make it necessary for liquid schemes to park 20 per cent of their corpus into G-secs, whereas in a single day schemes can make investments the whole corpus in collateralised borrowing and lending devices.


Overnight schemes gain traction as Sebi tightens norms on liquid funds


Trade sources say institutional traders — corresponding to banks and non-banking lenders — on the lookout for day by day liquidity are prone to transfer their allocation to those schemes. Graded exit load on lower than 7-day cash, can also be prone to deter these traders from liquid schemes.

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