Meltdown weighs on MFs equity exposure

Mumbai Dec 29 | Updated: Dec 30 2006, 05:30am hrs
The market meltdown in May, less number of open-ended new fund offerings (NFOs) and a stable return from debt market prompted the mutual funds to slow down their investment in equities and jack up the fund flow into debts in 2006.

MFs net investment in equities dipped 13%, or Rs 1,853 crore, to Rs 12,811.90 crore from Rs 14,665 crore in the previous year while the 30-share Sensex of the Bombay Stock Exchange (BSE) gained 46.82% during 2006. But the investments made by MFs in debts went up Rs 4,622.44 crore, or 11.11%. The MFs invested in debts almost 3.5 times of their exposure in equities 2006. They invested Rs 46,196 crore in debt as against Rs 41,573.56 crore last year.Prateek Agarwal, vice president and head - equities at ABN-Amro AMC said, Since the May crash, the exposure to equity funds has been low. During the same period, debt funds have been consistently giving good returns.

Investments in the debt segment have gone up as most of the NFOs launched this year were close-ended. But most of the funds launched last year were open-ended, where the exposure to equities was more, he added.

Till November this year, according to the Association of Mutual Funds in India (Amfi), a total of 35 new schemes have been launched, garnering Rs 11,277 crore. Out of the 35 NFOs, 31 are close-ended and just four are open-ended.

Echoing similar views, Sandesh Kirkire, CEO of Kotak Mahindra AMC, said, "The number of open-ended equity funds that have been launched this year are far less than that in the last year. By nature, open-ended equity funds invest in equities than debt.