It was a good year for debt funds as most categories gave returns in excess of 9%, with the gilt medium-andlong-term funds and dynamic bond funds emerging top performers owing to a decline in long-term interest rates.
“The outperformance of duration bond funds was more pronounced in the second half of the fiscal year as the commitment to fiscal discipline, the RBI’s open-market operations and expectations of policy rate cuts contributed to a rally in the bond markets,” said Vikrant Mehta, head, fixed income, PineBridge Investments, India.
Long-term interest rates have seen a significant decline. For instance, the 10-year AAA-rated corporate bonds, which were quoting in the 9.50-9.60% range in March, are now quoting at about 8.70-8.85%. On the other hand, the 10-year benchmark yields have moved from about 8.35% to 7.85% in the last three months.
Gilt medium-&-long-term funds topped the debt category with average returns of more than 10.5% in 2012. The category had given returns of just 5.77% in 2011. Dynamic bond funds gave returns of 10.1% in 2012 compared with returns of 8.3% in 2011.
Assets of several dynamic bond funds rose about 400% in CY12 as an uncertain interest rate environment prompted investors to put money in these schemes.
Liquid funds gave returns of 9%-plus in 2012 against 8.5% in 2011. This was because short-term rates remained high for much of the year, especially between January and March, as liquidity remained tight, said experts.
The demand for fixed maturity plans (FMPs) waned as the year progressed. “Interest in FMPs, especially of three-month and one-year maturity, was muted on account of low interest rates and lower issuance by banks,” said Mehta.
The number of FMP launches declined from 483 in the first half of the year to 151 in the second half, while fund mobilisation dipped from R78,948 crore in the first half to under R8,000 crore for the five months ending November. Fund houses had rushed to launch as many as 315 FMPs between January and March in anticipation of a decline in interest rates. The returns of ultra short-term funds and FMPs are