Mutual fund companies have lined up at least seven Fixed Maturity Plans (FMPs) and have filed draft documents for them with market regulator Sebi in a move to attract risk averse investors seeking short term returns.
The documents for these New Fund Offers (NFOs) have been submitted with the Securities and Exchange Board of India (Sebi) since September and the schemes would be opened for subscription soon after receiving necessary clearances.
Mutual fund companies had filed documents for at least 24 NFOs with Sebi last month and another 10 in July.
The seven fund houses that have lined up FMPs and Fixed Tenure Plans (FTPs) include IDBI,Tata,Axis,DWS,Union KBC and Principal Pnb.
FMPs mainly invest in specified duration instruments like bank certificates of deposit (CDs) and commercial papers (CPs),which are issued by companies and usually have tenures of a few months or a year.
The average return from FMPs has been in the range of 10-11 per cent in the past few years. Due to higher subscription amounts required,they are largely positioned for corporate as well as institutional investors.
According to industry experts,the fund houses with their FMPs are looking to tap those investors who want to invest in close-ended schemes with a lock-in strategy and lower interest rate risks.
“The recent tightening of liquidity due RBI measures has led to increase in rates,” ICICI Securities Executive Vice President and Head (Product Distribution Vineet Arora said.
“Short term rates have increased much more than long term rates leading to an inverted yield curve. This situation is expected to correct itself with Rupee stabilising itself and now with US Fed also not starting the taper immediately. This gives a good opportunity for investor to lock into these high rates,” he added.
“FMPs and FTPs are viable option for investor who want their portfolios to protected from volatility. However,recently many banks have hiked fixed deposit rates but fixed maturity plans score over bank FDs due to their tax efficiency,” Arora said.
The benchmark 10-year bond yield has jumped over 100 basis points to nearly 8.20 per cent from 7.15 per cent levels in over three months.
Assets under under management of mutual funds in the debt fund category (liquid funds) rose by 16 per cent to Rs 1.50 lakh crore in August on the back of inflows of Rs 32,100 crore into this category.
Bond yields and return on debt funds move in opposite directions,that is,as bond yield increases,debt returns fall and vice-versa.