Income funds' AUM doubles, average maturity at 3-year high

Average AUM of income fundsrose by 111%

Investor interest in long-term income funds surged during the quarter ended December 2012, with the average assets under management (AUM) for the category doubling as compared to the previous quarter, says credit rating agency Crisil.

The average maturity of the category also rose from 5.49 years to 8.40 years – the highest in the past three years. Additionally, the exposure to government securities has increased while the allocation to certificates of deposits (CD) and commercial papers (CP) has reduced.

The quarterly average AUM of income funds covered under the Crisil Mutual Fund Rankings rose by 111%, quarter-on-quarter, to Rs 33,563 crore. This is the highest AUM gain in the category over the past eight quarters.

The rise in AUM by Rs 17,702 crore was mainly due to inflows from high networth individuals (HNIs) and corporates in anticipation of a reduction in interest rates from the Reserve Bank of India (RBI) in its monetary policy on January 29, 2013.

Bond prices (Fund NAVs) and yields move in opposite directions owing to which a fall in interest rates will result in a rise in bond prices and positively impact long-term debt fund NAVs (returns).

Over the quarter, the yield of the 10-year benchmark government bond 8.15%, 2022 eased by 10 basis points to 8.05%. The 10 year bond has subsequently moved down to 7.88% as of January 24, 2013.
 
Income funds have also increased their maturity as portfolios with higher maturity would earn superior returns in falling interest rate scenario.  During the quarter, the category increased their average maturity to 8.40 years, highest in the past three years.

Across categories ranked, small and mid-cap equity funds were the top performers in the quarter delivering 8.06% absolute returns. At the fund house level, UTI Mutual Fund led the tally of top ranked funds for the quarter ended December 2012 with nine funds under CRISIL Mutual Fund Rank 1. This was followed by Birla Sun Life Mutual Fund and ICICI Prudential Mutual Fund with seven top ranked funds each. The latest CRISIL Mutual Fund Ranking covers over 90% of the industry’s average assets under management of the open ended schemes as of December 2012.