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Big investor shift to debt MF schemes

Chandan Kishore Kant  |  Mumbai 

Emerge as a safe haven due to predictability of returns amid a high interest rate scenario; likely to remain so till interest rates subside.

Debt are in the limelight. With a majority of equity schemes losing money for investors over the past year, the debt category has emerged as a safe haven, due to the predictability of returns amid a high interest rate scenario.

Fund managers say there is a visible shift from equities to debt funds, especially in recent months, as equities continue to disappoint. The stock market benchmark indices have lost 17.5 per cent of their values in the past year. The average negative return on most equity schemes have been in double-digits during the period.

Showing rising folios in debt schemes and losing equities
Income funds 31-Mar 31-Oct
Liquid/Money markets 193,156 202,298
Gilt funds    29,178 27,804
Debt funds 4,305,101 4,708,776
Total 4,527,435 4,938,878
Equity funds 39,290,289 38,646,453
Source : Securities and Exchange Board of India

Interestingly, among the 10 top performing fund categories, seven are debt funds, with ultra short-term schemes being the best performing of income funds (see table). This has created a pull factor among investors. Sahara Short Term Bond Fund is the best performing among ultra short funds, with a one-year return of 13.85 per cent.

UTI Asset Management’s chief marketing officer, Jaideep Bhattacharya, says, “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 and investors are taking advantage of the high interest rate scenario.”

For instance, during the April-October period of this financial year, at a time when equity schemes saw their investor base shrunk 1.6 per cent or a decline of 643,836 folios, income funds have seen a considerable rise, with 400,000 new folios added, a rise of nine per cent.

According to Ganti Murthy, head of fixed income at Peerless Mutual Fund, “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.”

Fund managers say at a time when even fixed deposits from banks are fetching as much as nine to 10 per cent, some of the fixed mutual fund schemes are giving as high as 14 per cent return. “The major flows are in fixed income funds, bond funds and short-term funds,” says Amandeep Chopra, head of fixed income at UTI AMC.

Fund managers expect the Reserve Bank of India to cut interest rates. “This could happen by the first quarter of FY13. Since there is predictability of returns in debt funds, investors are likely to keep a preference for debt schemes till interest rates subside,” they add.

According to the Securities and Exchange Board of India, as on October 31, the average of assets under management in debt funds was Rs 4,78,285 crore, while that of equity funds was Rs 1,78,948 crore.

First Published: Thu, December 01 2011. 00:32 IST