These income funds for long were waiting in the wings with a larger portion of cash to seize any opportunity that came their way. As one fund manager put it, income funds were fairly active in the CP market.

Besides income funds, a number of quasi-money market mutual funds will benefit since they have a higher exposure to the cash market vis-a-vis their long-term counterparts. ``These funds are likely to give a healthy yield and unlike MMMFs, investors can exit these short-term debt funds conveniently since there is no lock-in,'' pointed out an analyst.

And unlike January this year, when RBI's measures had caught income fundsoff-guard, a higher cash position is expected to benefit a majority of them this time. It may be recalled that the sudden tightening of interest rates in January had resulted in an across-the-board fall in prices of securities. As a result, a majority of income funds witnessed a crash in NAVs since they were almost fully-invested.

``A case of once-bitten-twice-shy income funds were holding money in cash and short-term instruments since the rupee had failed to stabilise and in expectation of hardening of interest rates on account of government's borrowing programme,'' said an analyst. ``Funds were holding cash for an entirely different purpose but suddenly, this investment opportunity arose due to RBI's measures,'' said S Kannan, head, Escorts AMC.

In fact, income funds were beginning to feel the pinch due to low returns in the cash market and had started moving to other short-term avenues like CPs amidst the interest rate uncertainty. Here again, income funds were losing out to banks who were alsoinvesting aggressively in short-term papers due to excessive liquidity. Thus, Friday gave some respite to income funds, albeit short-lived. While returns in CPs came down from 16 per cent to 10-11 per cent, call rates cooled down and closed at around 8.5 per cent.

``It was a small investment opportunity but returns are better if you had the money. This time, people were aware of strict RBI action and hence, were watchful. We have also reduced the average maturity period of our portfolio from 17 months to nine months,'' said Nilesh Shah at Templeton.

``Unlike last time, this panic proved to be short-lived and there is ample liquidity in the system. But the picture is slightly murky for next week,'' said Vineet Udeshi at Alliance Mutual fund. According to a Chennai-based fund manager, quotes were high in the call market initially but cooled down once big institutions stepped in. ``These institutions were not prepared to borrow above 9 per cent, which immediately brought down the rates. Besides, panicselling of CPs by banks also stopped after some time,'' he said.

Nonetheless, some fund managers were quick to seize the opportunity. ``There were great investment opportunities even for a longer-term period and we capitalised on the situation,'' said Sridhar Narayan, fund manager, ITC-Threadneedle. ITC's High Interest Fund, for one, was holding around 46 per cent in money market assets and 27 per cent in cash in mid-July.

Fund managers, in unison, point out that next fortnight is going to be crucial since the CRR raise comes into effect only from August 29. ``The real impact will be known only next week,'' said T P Raman at Sundaram Newton AMC. A lot also depends on the inflows on account of Resurgent India Bond collections. ``RIB is a big question mark. As of now, the extent of money that will actually flow into the economy is not clear,'' said a Mumbai-based fund manager.

``Besides the CRR raise which will absorb Rs 5000 crore, there is an outgo of Rs 3,000-5,000 crore in September on account of thesecond installment of advance tax collections. If RIB collections fail to match this outflow, there will be hardening of interest rates,'' said a Chennai-based fund manager. ``There is an even chance that call rates remain between 15-20 per cent next week, which is again a great investment opportunity. Hence, one can take a chance and not lock his money in other investments,'' he added.