The exposure of debt mutual fund (MF) schemes to government securities (G-secs) hit a 13-month low in April.
Around 12.4 per cent of the total debt assets under management (AUM) was invested in government paper. The exposure was down a sharp 355 basis points (bps) since last September. In absolute terms, Rs 1.22 lakh crore of MF assets were in G-secs, compared to last year’s high of Rs 1.42 lakh crore.
With expectation of further rate cuts by the Reserve Bank of India (RBI) a quarter away, fund managers have shifted slightly away from G-secs in favour of corporate bonds. Sujoy Das, head of fixed income at Invesco MF, says: “The credit spreads have widened to around 70 bps over sovereign bonds. This makes credit papers attractive compared to gilts. Gilts' curve is flat beyond 15-20 years, making long gilts unattractive.”
Gilt MFs primarily invest in G-secs. The category average return of gilt short-term funds in the past three months was 3.47 per cent, while the one-year return was much higher at 9.41 per cent. On the other hand, medium and long-term gilt funds have offered a return of 5.5 per cent in the past three months, while their one-year average return was 7.9 per cent as on Friday.
Says Murthy Nagarajan, head- fixed income, Quantum AMC, “MFs expect interest rates to be range-bound as April consumer price index inflation was 5.39 per cent and is expected to remain above five per cent till September. Fund managers normally increase the maturity of the fund by buying G-secs to take advantage of a fall in interest rates.”
Adding: “Global uncertainty has increased due to Brent crude prices trading at $50 a barrel. Economic data has been strong in the US due to core inflation touching two per cent and unemployment at 4.7 per cent for April. RBI is expected to closely watch the monsoon and the effect it would have on vegetable prices and pulses before it cut its benchmark repo rates. Given the uncertainty, market expectation of repo rate cuts have shifted to August. To protect the portfolio and to earn higher accrual income, fund managers have shifted from G-secs to corporate bonds.”
Currently, the MF sector offers 41 gilt funds with an overall asset size of Rs 16,123 crore, one per cent of the total AUM.
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