Higher interest rates as well as poor return expectations from equity markets for the year ahead have led several HNIs to shuffle portfolios in favour of debt products. In the last one month, fixed maturity plans, cash funds and MIPs are a rage among HNIs. Observers say debt funds have attracted over Rs 70,000 crore in the past few weeks, which includes inflows from HNIs.
Dhirendra Kumar, CEO of Valueresearch says, ?Debt funds have become attractive with short-term rates going up. We are witnessing money flowing into the FMPs as investors fear that in the coming months interest rates will come down.?
Market participants are expecting a rate hike in the quarterly monetary policy of RBI on January 25. ?For the short term we assume rate will go up, but from March it might correct a bit,? said Maneesh Dangi, head-fixed income at Birla Sun Life Mutual Fund.
Higher interest rate is also prompting some wealth managers to encourage investors to buy into relatively lower rated (below A+) papers of real estate firms and non-banking finance companies. These papers are slightly risky but give returns of 9%-12% for a period of 1-year, thus beating inflation.
Leading distributors in the city on condition of anonymity said, ?In the last three-four months HNIs have consistently redeemed from the equity markets and shifted their focus to debt funds. Large number of HNIs are investing in FMP(Fixed Maturity Plans)s and locking their money for one year at higher yields.? Currently FMPs are providing a returns of over 10-11% per annum.
And, certificate of deposits (CD) are trading at a yield of 9.8% for 1 year, while it is 10.23% for commercials papers (CP). Dangi says, ?In the last 2-3 years debt funds were not a great performer, but now with interest rate likely to go up, investors are coming back into the debt funds. According to market participants, not only the HNIs but retail investors are also investing into debt related funds. “It makes sense for the investors to invest in debt funds as they are giving better returns compared to banks FDs? said a fund manager.
In the last one month ultra short term fund and short terms fund have given an absolute return of over 0.5-0.7%, while equity markets have seen a fall of over 4%. Three months back, brokerage house Edelweiss Securities had launched a separate section on exchange traded debt for retail investors and HNIs who want to invest in debt. ?We believe investing in exchange traded debt will be the next big thing for its relative safety, high liquidity and market-linked returns,? said Kedar Deshpande, head ? retail broking, Edelweiss Securities.