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| Gilt funds investors press exit button on low returns |
| Vandana / Mumbai Jul 14, 2009, 00:51 IST |
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The scenario has changed for the worse with fiscal deficit forecast of 6.8 %.
At a time when the mutual fund industry is showing regular growth, gilt fund investors are pressing the exit button. Gilt funds, which had emerged as one of the most popular category in 2008, are facing an increased redemption pressure.
Figures from the Association of Mutual Funds in India (Amfi) suggested that gilt funds witnessed outflows worth Rs 1,212 crore. Total average assets under management for gilt funds stand at Rs 5,480 crore, constituting 1 per cent of the total assets of the industry. In fact, fund houses have not seen fresh inflows under these funds since May.
And things may not improve too soon. Experts said that post-Budget, the scenario has become grimmer for these funds with the government forecasting fiscal deficit at 6.8 per cent of GDP for 2009-10. "Investors have been moving from gilt funds to short-term income funds. Gilt funds will feel pressure for some more time because of rising yields. This had adversely impacted the returns and, hence, investors chose to exit," said Anjaneya Gautam, vice-president, Bajaj Capital.
Returns on gilt funds had jumped to over 20 per cent in 2008 when RBI started a series of rate cuts to combat the liquidity crisis. However, returns are now hovering at 14. 6 per cent for one year. The returns have especially dried up in the last three months with the category posting a meagre 1.08 per cent returns. The 10-year government security is currently trading at 7 per cent.
"G-secs have become volatile due to supply-side pressure from the government. This has pushed yields at the longer end of the curve. The government is planning to borrow Rs 4,51,000 crore and that will exert pressure on the yields," said Sujoy Das, head of fixed income at Bharti Axa Investment Management.
These funds have been witnessing net outflows for the past three months. The highest outflow was seen in May when investors withdrew Rs 782 crore from gilt funds. In fact, in May 2008 too, gilt funds saw outflows worth Rs 153 crore. In April, investors pulled out Rs 400 crore from these funds.
"Interest rates are no more on a downtrend. So, longer-term gilt funds are under pressure because of yields shooting up. It would be mainly provident funds and other institutional investors who would have withdrawn," said Ramkumar K, head of fixed income at Sundaram BNP Paribas Mutual Fund.
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