Record Inflows into Liquid Funds Reflect Investor Caution Amid Market Volatility
Liquid fund inflows at a 7-year high as investors avoid risk
The Economic Times
Image: The Economic Times
In April, net inflows into liquid funds in India reached a seven-year high of ₹46,448 crore, driven by ample liquidity and attractive short-term yields. This surge reflects a cautious approach by investors amidst volatile equity markets, with liquid fund yields offering a significant advantage over traditional overnight rates.
- 01The total net inflow into liquid funds rose to ₹1.65 lakh crore in April, up from ₹1.19 lakh crore a year earlier.
- 02System liquidity in April ranged between ₹2 lakh crore and ₹5.5 lakh crore, compared to ₹1 lakh crore to ₹2 lakh crore in the same month last year.
- 03Liquid funds offered returns of approximately 5.5-6% in April, compared to overnight rates around 5%, providing a yield advantage of 50-100 basis points.
- 04Liquid schemes allow T+1 liquidity, enabling access to funds within one business day and qualifying as liquidity under liquidity coverage ratio norms.
- 05Geopolitical tensions and equity market volatility have led investors to prefer low-risk liquid instruments for parking surplus funds.
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According to data from the Association of Mutual Funds in India (AMFI), net inflows into liquid funds reached a record ₹46,448 crore in April, marking the highest increase in at least seven years. This surge is nearly three times the ₹15,905 crore increase seen in the same month last year. The total net inflow into liquid funds rose to ₹1.65 lakh crore, up from ₹1.19 lakh crore a year earlier. Factors contributing to this trend include abundant system liquidity, attractive short-term yields, and a cautious investor approach due to volatile equity markets.
System liquidity in April was notably high, ranging between ₹2 lakh crore and ₹5.5 lakh crore, compared to ₹1 lakh crore to ₹2 lakh crore in the previous year. Liquid funds offered returns of around 5.5-6%, creating a yield advantage over overnight rates. The operational flexibility of liquid schemes, which provide T+1 liquidity, makes them an efficient option for institutional treasuries. Heightened geopolitical tensions have further encouraged investors to adopt a cautious stance, opting for low-risk liquid instruments to retain flexibility for future investments.
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The increase in liquid fund inflows provides banks with opportunities to earn higher returns on surplus liquidity, potentially influencing lending rates and investment strategies.
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