Equity mutual funds' loss is debt funds' gain
Tue, 05 Jun 2012 13:14:54 -0600
Industry experts say global uncertainty will lead to more fund flows into debt funds
In the mutual fund industry, equity funds' loss has spelt gain for debt funds.
Global uncertainty coupled with problems faced by the domestic economy would lead to higher fund flows into debt-oriented mutual funds, according to industry experts.
"Recently, the mutual fund industry saw more flows into the debt-oriented funds, especially on the fixed maturity plans (FMPs) and short-term funds," IDBI Mutual Fund managing director and chief executive Debasish Mallick said.
Going ahead, investors' interest is expected to be more in these debt-oriented funds due to continuing uncertainty in both domestic and global economy, he added. Debt-oriented mutual fund schemes generally invest in bonds, corporate debentures, government securities (gilts), money market instruments, etc. And provide regular and steady income to investors.
Given the possibility of reduction in interest rates, fund flows into FMPs and short-term funds will be more in the near-term, he said.
"When there is a likelihood of reduction in interest rates, fund flows will be more into FMP-kind of schemes. Also, short-term funds (debt oriented) are also likely to attract more funds due to possible capital gains," Mallick said.
The equity-oriented mutual funds could also attract funds in the second half of this fiscal if the situation improves on the global and domestic fronts, according to experts.
Referring to investments in equity schemes, they said it was difficult to attract fresh funds due to the current lacklustre performance of the equity market.
UTI Mutual Fund executive vice-president and fund manager Swati Kulkarni said though fresh fund flows to equity schemes seem little difficult, these schemes are likely to attract investors' interest if the situation improves.
"If the issues of twin deficits (fiscal deficit and current account) are addressed and the global situation improves, equity market is at attractive valuation to woo funds," she said.
Though it is difficult to time the market, second half of this fiscal is expected to be better for the equity market, she added. "Fresh fund flow to equity schemes will be difficult at this point in time. However, I don't see any redemption pressure due to a panic kind of reaction," Mallick said.
The mutual fund industry posted a nearly 16 per cent growth in its average assets under management (AUM) at Rs 6.8 lakh crore as of April on the back of higher inflows to money market funds. The rise in AUM was mainly due to inflows of around Rs 75,700 crore in liquid funds.
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