MUMBAI: A fund pool as large as Rs 50,000 crore is seeking investing opportunities across asset classes. Mutual funds, banks and companies wanting to raise money are competing against each other to pocket investible funds that have started flowing out of high-interest bank fixed deposits.

After the collapse of US investment bank Lehman Brothers in September last year, risk-averse investors had parked large sums of their savings and surplus cash in ‘term deposits’ floated by banks. In their bid to attract money from investors, banks were offering interest rates in the range of 10-11% for deposits spanning 1-3 years. A year later, investors are withdrawing deposits, as interest rates have fallen over 500 bps from peak levels reached in October 2008.

“We’re already beginning to see opportunistic investors shifting their investments from banks to mutual funds and other asset classes,” said Vikaas Sachdeva, head-business development, Bharati Axa Investment. “While conventional investors (or investors advised by banks) would retain their money in bank fixed deposits at lower interest rates, the smarter ones would look at options like short-income funds, treasury advantage funds, fixed maturity plans and also monthly income plans for higher returns,” Mr Sachdeva added.

At current rates, bank deposits would yield anywhere between 5.2% and 7% pre-tax. In the event of rising interest rates, mutual fund investors would be looking at shorter-term debt options to invest their money. Money market funds currently yield 4.5-5.5% (pre-tax; if dividend option, tax charged is lower) interest, while fixed income funds earn pre-tax interest of 8-10%.

“Investments will not be skewed to any particular asset class this time around. Money will be scattered across assets, with a decent chunk flowing in to fixed income mutual funds and smaller portions in to equities and other asset classes,” said Alok Singh, head-fixed income, Fortis Investment Management.

Wealth management experts are not expecting large chunks of money to flow into equity mutual funds and stocks, thanks to stretched stock prices and market volatility. The very fact that a good portion of bank fixed deposits are held by corporate treasuries rule out chances of money flowing into stock markets or real estate any time soon. Companies wanting to raise deposits (corporate FDs) will benefit the most from this scenario, wealth managers opine.

Corporate FDs offer at least 2-3 percentage points higher than the corresponding rates offered by banks in their fixed deposit schemes. Interest is paid on monthly, quarterly, half-yearly, yearly or on maturity basis. Companies like TV 18, Damodar Threads, Future Polyester, Indage Vintners and Tata Motors are raising money from public and body corporates at rates as high as 11%.

“Investor profile will determine the flow of money. Wholesale deposits (corporate surpluses) will never come to equity funds for sure. Such pools will chase short-term debt funds or be ploughed back to the company itself for capex initiatives,” said Huzaifa Husain, head of equities, AIG Investments. “Retail deposits, which are smaller in size, will flow into all asset classes, including bank deposits (reinvestments), equities, funds and even gold,” Mr Husain added.