New FMPs hit record high, cross Rs 1-lakh cr mark

Number of schemes launched till November beats the entire 2008 tally.

In the mutual fund space, 2011 truly belonged to fixed maturity plans (FMPs). At least 615 new schemes were launched till November this year, raising a whopping Rs 1.08 lakh crore, according to data provided.

A fixed-maturity plan is a fund that invests in debt and money market instruments of the same maturity as the stated maturity of the plan.

This is the highest in three years after the new regulatory framework came into play. While the year saw twice the number of schemes launched in 2010, the amount raised was 50 per cent more. In 2010, 288 schemes raised Rs 72,001 crore.

If one adds the December numbers, expected in a couple of weeks, 2011 is likely to top 2008 as the best year for FMPs. This year’s new scheme collections are Rs 8,000 crore short of the record Rs 1.16 lakh crore clocked in 2008. In terms of new scheme launches, 2011, with 615 schemes, has already seen more than the 569 launches in 2008.

That year also saw the worst crisis for these schemes as huge redemption pressure from institutional investors, following the collapse of Lehman Brothers, led to heavy losses for investors. Following this, the regulator put in place strict guidelines, including banning premature redemptions and indicative yields. These strictures put FMPs out of favour for the next couple of years. In 2009, FMPs raised only Rs 10,519 crore.

However, consecutive rate increases by RBI and dismal equity markets have put these schemes back in favour. At a time when fixed deposits from banks are fetching as much as 9-10 per cent, some fixed mutual fund schemes are giving returns of as much as 14 per cent.

Marketing officials say flows in the income fund category are on the rise, especially fixed monthly plans and monthly income plans. “Post tax, these schemes are offering better returns,” notes a senior marketing head. “Investors are taking advantage of the high interest-rate scenario.”

There is a visible shift from equities to debt funds, especially in recent months, as equities continue to disappoint. The BSE Sensex has lost nearly a quarter of its value this year. In line with this, a majority of equity schemes have lost money for investors over the past year. However, the debt category has emerged as a safe haven, due to the predictability of returns amid a high interest rate scenario. “The major flows are in fixed income funds, bond funds and short-term funds,” says Amandeep Chopra, head of fixed income at UTI AMC.

According to Ajit Menon, executive vice president and head of sales at DSP BlackRock Mutual Fund, there is consistent flow of bad news over the last few months. “Investors are not getting confidence in such markets,” he says. “Moreover, at a time when interest rates are so high, why would investors put money in equities?”

Fund managers see this momentum to continue into the new year, as rates are expected to remain high at least till March. Ganti Murthy, head of fixed income at Peerless Mutual Fund, says there is a “visible shift” in investments from equities to debt in the past couple of months. “It is likely that the momentum (of flows) will increase.”

A chief marketing officer of a bank-sponsored AMC notes that the global news flow shows that uncertain times are far from over. “At a time when other saving schemes are offering lucrative returns, why would investors take risk by investing in equities?” he asks.