The mutual fund (MF) industry is heading towards fixed maturity plans (FMPs) in view of the volatility in the equity market and tightening monetary supply.
According to a data released by Sebi, a large number of fund houses including Reliance Mutual Fund, UTI Mutual Fund, Kotak Mutual Fund, LIC Mutual Fund, ING Mutual Fund, Sundaram BNP Pariba Mutual Fund have filed their applications with Sebi for offering FMPs.
A manager at a domestic fund house said the industry has already learnt a lesson from the meltdown in May last year. It was badly hit as it stayed invested when the equity market shed more than 30% of its market capitalisation between May 10 to June 15, 2006. Also, after Securities and Exchange Board of India (Sebi) tightened regulations on the issue of participatory notes (PNs), it has added volatility to the market. Foreign institutional investors (FIIs) pumped in around $8 billion in August and September.
However, after clarity on the issue, post Sebi decision on October 25, FII activity has slowed down. This has helped in containing the volatility in the market.
This has influenced the fund houses to change their investment strategy in a volatile market. They have decided to book profits at higher levels and pump money when values are low.
The market has witnessed a bull run in the recent past as Bombay Stock Exchange Sensex went up from 15,061 points on August 3 to 19,281 points on November 7. MFs, on the other hand, were net sellers during this period ? at Rs 763 crore in September and 1,715 crore in October.
Another manager from a global fund house said that MFs are apprehensive that the equity market may continue to be volatile due re-surfacing of the US subprime mortgage crisis. And, the RBI?s decision to hike CRR by 50 basis points on October 30 to contain any possible rise in inflation has further given warning signals to fund houses.
The MF industry has decided to offer FMPs because it is considered a safe option and gives return in line with the interest rate movement.
Apart from FMPs, the fund house are also planning to offer Gold ETF as it is considered another safe fund. The Quantum Mutual Fund has recently filed an application with the regulator for offering Gold ETF.
