FMP appetite dips as interest rates decline significantly since Mar

The investor appetite for FMPs remained strong in the first quarter of calendar year 2012 with cumulative mobilisation of about Rs 55,000 crore.

New fund launches, however, declined about 70% to 152 in the second half of 2012 from 484 in the first half. More than 600 FMPs were launched in the full year 2012 that cumulatively collected about R80,000 crore. As on January 31, 2013, the assets under management of FMPs totalled R97,462 crore, a decline of about 9% from R1.07 lakh crore of assets as on July 31, according to data sourced from Value Research.

The yield curve was a bit inverted in March, with short-term interest rates being high, making FMPs quite lucrative at that juncture, according to Morningstar India. After March, however, short-term interest rates came down quite significantly, and so did the appetite for FMPs. For instance, one-year CD rates are now hovering at about 9.30% levels from about 10.5-11% in March.

“With interest rates starting to decline in 2012, and with further rate-cuts anticipated by the RBI going forward, investor appetite for FMPs dropped considerably, after the month of March 2012,” said a report by Morningstar India.

High networth individuals started to move their investment to durations funds, such as dynamic bond funds, short-term bond funds, medium-term bond funds and income funds as interest rates started

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