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.
In the recent monetary policy announcement, MPC voted 5:1 to maintain accommodative stance, while voting unanimously to maintain the policy rates across Repo, Reverse Repo & Marginal Standing Facility. The outcome of policy was less dovish as compared to market expectations. This was primarily due to announcement of four Variable Reverse Repo (VRRR) auctions which will be conducted every fortnight from August 13 with an increasing quantum every fortnight being ₹ 2.5 lakh crores, ₹ 3.0 lakh crores, ₹ 3.5 lakh crores and ₹ 4.0 lakh crores. The system liquidity is in surplus mode to the tune of ₹ 8 lac crores approx so the increase in VRRR may still leave sufficient liquidity in the banking system. However, the announcement of increase in VRRR is construed by markets as continuation of process of normalization which was halted due to second wave of Covid. The liquidity normalization process is expected to be a gradual and in phased manner. The fact that one of the MPC members voted against the accommodative stance was also slightly negative for the market as it suggests that MPC members have started re-assessing the withdrawal of accommodative stance. It is expected that RBI would start the normalization process in next 4-6 months by increasing the reverse repo rate if growth pickups substantially and if there is no onset of 3rd wave of Covid.
With the shorter end of curve (i.e. 1 to 2 years part of the curve) being supported due to ample system liquidity and the mark-to-market volatility being comparatively low, UTI Treasury Advantage Fund provides a good investment opportunity to park for short horizon of 6 to 12 months.