UTI Treasury Advantage Fund follows an accrual-oriented strategy by investing in a well- diversified portfolio of debt and money market instruments with an aim to generate reasonable income with lower volatility over the short-term (6 to 12 month segment). The fund primarily invests in commercial papers, certificate of deposits and low duration corporate bonds along with tactical exposure to government securities.
The quantum under the VRRR was increased from₹ 2 lac crores to ₹ 4 lac crores in the last monetary policy announcement. This affected the yield movement at the shorter end of the curve, however various interviews by the Governor and MPC members clarified that the pace of policy normalization would be gradual and in phased manner. It is expected that RBI is likely to continue to withdraw liquidity at the current pace in the next policy as well and it may announce an increase in tenure of VRRR from 14 days to 28/56 days.
However, the process of liquidity withdrawal would be gradual. On global front, the U.S. Federal Reserve Chief at the Jackson Hole Symposium did not commit to a timeline for starting the tapering process and indicated that US Fed is going to be very gradual as far as rate hikes are concerned. The expectation is that Fed will start its tapering exercise from November’21 and end by June’22, this is likely to provide comfort to domestic bond yields. Going ahead, yield movement would be dependent on economic growth, inflation-growth dynamics, pace of vaccination, impact of third wave globally, demand during festive season etc.
In this scenario, UTI Treasury Advantage Fund provides a good investment opportunity to park for short horizon of 6 to 12 months as the shorter end of curve (i.e. 1 to 2 years part of the curve) continues to be supported due to system liquidity and the mark-to-market volatility being comparatively low.