Debt turns mutual funds favourite in bearish mkt

Written by Markets Bureau | Mumbai, Jul 6 | Updated: Jul 8 2008, 03:31am hrs
The falling equity market, leading to erosion in the assets under management (AUM), has forced the mutual fund (MF) industry to enhance its exposure in the debt market since the beginning of the current calendar year.

Fund houses have lined up to introduce new schemes increasingly in the liquid and fixed income segment to offer a stable return in a rising interest rate regime amidst high inflationary pressures.

According to Sebi, the MF industry has pumped a cumulative sum of Rs 53,493 crore in the financial market since January 1, 2008 till date. Out of this, 83% or Rs 44,227 crore is in the debt market itself during the said period. The equity market meltdown is the major reason for the MF industry diverting its funds from the equities to the debt segment.

The Bombay Stock Exchange (BSE)s Sensex eroded more than 33% during the corresponding period. This nervousness was responsible for the redemption pressures that led to the dip of 6% in MFs AUM in a single month in June alone.

Taking a cue from the market meltdown, more than 12 fund houses have lined up to offer debt funds for a three to thirteen months horizon. A senior manager from a domestic fund house said the resources mobilised from these schemes are being invested in fixed income securities and money market instruments generally maturing in line with the time duration of the fund. These schemes provide better returns than the banks FDs, he said.

Tushar Poddar, vice-president, Asia Economic Research, Goldman Sachs, has attributed the fall in the Indian markets to soaring oil prices in the wake of weak global cues and double digit inflation hurting market sentiments.

The crude oil prices in the global market have now crossed $145 per barrel. The high oil price was instrumental for the increase in the inflationary pressures. The market experts are of the opinion that RBI may further tighten the monetary policy in its July 29 quarterly policy statement to arrest politically-sensitive inflation, which has touched 11.63% now from the under-5% level at the beginning of the year.