The quarterly average AUM of income funds covered under the Crisil Mutual Fund Rankings rose 111%, quarter-on-quarter, to R33,563 crore, the highest AUM gain in the category over the past eight quarters.
The rise in AUM by R17,702 crore was mainly due to inflows from high networth individuals (HNIs) and corporates in anticipation of a reduction in interest rates from the Reserve Bank of India (RBI) in its monetary policy on January 29, 2013, according to Crisil Research.
Income funds have also increased their maturity as portfolios with higher maturity would earn superior returns in a falling interest rate scenario. During the quarter, the category increased their average maturity to 8.40 years, the highest in the past three years.
Bond prices (fund NAVs) and yields move in opposite directions, owing to which a fall in interest rates will result in a rise in bond prices and positively impact long-term debt fund returns. Over the quarter, the yield of the 10-year benchmark government bond 8.15%, 2022 eased by 10 bps to 8.05%. The 10 year bond has subsequently moved down to 7.88% as of January 24, 2013.
Another portfolio trait observed in the category was the increased exposure to government securities, while reducing allocation to CDs and CPs. Allocation to government securities increased to 46% in December vis--vis 24% in September 2012, according to Crisil Research. The category also delivered 2.39% absolute returns over the quarter.
IDFC Dynamic Bond Fund, SBI Dynamic Bond Fund and SBI Magnum Income Fund feature among Crisil's top ranked long-term income funds, while HDFC Short Term Opportunities Fund, JM Short Term Fund, Peerless Short Term Fund, Religare Credit Opportunities Fund and Sundaram Flexible Fund Short Term Plan were the top ranked short-term income funds.
Across categories ranked, small- and mid-cap equity funds were the top performers in the quarter, delivering 8.06% absolute returns, according to Crisil Research.
At the fund house level, UTI Mutual Fund led the tally of top-ranked funds for the quarter ended December 2012, followed by Birla Sun Life Mutual Fund and ICICI Prudential Mutual Fund. The latest Crisil Mutual Fund Ranking covers over 90% of the industrys average AUMs of the open ended schemes as of December 2012.