Debt funds are the new flavour

CHENNAI: The uncertainty in the stock markets has resulted in renewed interest for debt funds. Investors seem to be placing more confidence in debt and cash funds. The assets under management (AUM) of debt funds jumped 45.5% between January 31 and June 30 this year to Rs 36,086.12 crore. The AUM for equity for the same period fell 13.1% to Rs 1,71,463.24 crore, according to Valueresearch data.
For debt schemes, the AUM in June this year represents a more than two-fold jump compared to the same period last year.On a month-on-month basis, equity AUMs witnessed a nearly 10% decline and reached a six month low on June 30. "In the current stock market chaos, there is no sector which has not got beaten," according to Dhirendra Kumar, director of Valueresearch, a firm that tracks the mutual funds sector.
With bond yields heading north and interest rates ruling high, fixed maturity plans (FMPs) have become the flavour of the season. All the leading fund houses have come up with a host of new FMPs in the past two months. Though the returns are not assured in FMPs, investors can expect a return in tune with current interest rates, according to Valueresearch.
These close-ended schemes seek to generate regular returns by investing in debt, government and money market securities that mature in line with the duration of the scheme. FMPs also attract lesser tax when compared to fixed deposits. The cash portion, which includes liquid funds, FMPs and floating rate funds, grew 9.85% between January 31 and June 30. Hybrid funds, which have a large portion in equity, saw a 17.65% decline during the period.
Fund managers expect fixed income schemes to remain popular given the uncertain conditions. "Equity markets have become volatile and this is the reason for the trend," says a fund manager.