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Sharvari Patwa

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Mumbai, June 28 With equity markets in the doldrums, mutual funds are increasingly turning to debt instruments. According to information available, several mutual funds have diverted a large portion of their portfolios into debt schemes in the past few months.

The debt portion of assets under management of the mutual funds industry increased by around 25 per cent by May-end from January 2008, while the share of equity fell by 14 per cent, according to data provided by Value Research, an organisation which tracks mutual fund data.

The equity portion of the assets under management of mutual funds dropped to Rs 1,89,958 crore in May 2008 from Rs 2,19367 crore in December 2007, according to Value Research. The portion of hybrid schemes (which has a large percentage of equity) also fell by around 20 per cent during the same time.

The debt portion of the asset base has increased by around 25 per cent in the past five months, in which the share of medium-term funds and gilt funds etc has gone up by more than 50 per cent, while the cash portion which generally includes liquid funds, floating rate funds and Fixed Maturity Plans (FMPs) amongst others, grew by around 22 per cent.

The total debt portion of the mutual funds asset base has gone up to Rs 3,81373 crore in May from Rs 3,06,786 crore in December.

“The value of equity funds has fallen by around 35 per cent in the past few months, but the asset base in case of equity has fallen by only 14 per cent. This means that there is still some fresh money coming into the equity segment,” said Mr Dhirendra Kumar, Director, Value Research.

“It is pretty obvious that people would want to get into fixed income schemes during uncertain times, but it is unfortunate that retail investors have started investing in debt schemes only when the markets have already corrected massively,” said Mr Paras Adenwala, Chief Investment Officer, ING Investment Management.

“Growth schemes with large cash prefer to lend in the money market, (for example in the repo market) where the returns are attractive,” said Mr Parijat Agrawal, Head (Fixed Income), SBI Mutual Fund.

It is the Fixed Maturity Plans which are the flavour for the past few months as a number of mutual funds have come up with various FMPs and are cashing in on that, said analysts.

“With yields going up due to hardening of interest rates, more money is coming into the bond market through the debt schemes,” said Mr Agrawal.

“The number of investors opting for FMPs has gone up substantially since in the medium-term, many plans have given mostly neutral or negative returns,” said Mr Dhirendra Kumar of Value Research.

“Only recently the Securities and Exchange Board of India has reduced the fee for filing offer documents for FMPs and that is also one of the reasons why these plans are being increasingly brought out by mutual funds,” said an analyst with a research house.

More Stories on : Mutual Funds | Mutual Funds | Investments | Govt Bonds

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