08 Jul , 2021 By : Kanchan Joshi
Debt mutual funds have seen net outflows of Rs77,225 crore in the first half of calendar year 2021, considering open and close-ended funds. This is mainly on account of fixed maturity plans (FMPs) maturing and the money not flowing back into fresh FMPs.
FMPs are close-ended schemes with a fixed maturity. Investors get back the maturity value when the FMP term ends. Low yields have dissuaded mutual fund houses from launching fresh FMPs, experts say. The net outflow in the first half of 2021 is worse than the Rs23,414 crore that flew out in the first half of 2020, when credit risk fears dominated the market.
Assets under management (AUM) of debt mutual funds stood at Rs14.35 lakh crore at the end of June 2021, a mere 2% higher than the Rs14.06 lakh crore registered at the end of December 2020. Much of this is likely to be a result of mark-to-market gains as debt funds accrue interest on their holdings. Flows, however, have not been supportive in this space.
“3 years back – FMPs (Fixed Maturity Plans) were one of the most preferred avenues in fixed Income investing as the yields were in the range of 8?GR for AAA-rated portfolios. But this calendar year 2021 tells a different story – FMPs in April-June 2021 quarter are negative by more than 50,000 crore. In fact, the MF industry is shying from launching FMPs for 3 yewrs at such low yields as there is hardly any investor appetite for them," as per Chetan Gill, a Chandigarh-based distributor.
“So where has this huge chunk of money gone? Definitely, some portion has been parked in arbitrage funds – in anticipation of perhaps higher yields by next year on debt products. Bond ETFs, roll down strategies and floating rate funds also saw net inflows. Overall flows in the first half of calendar year 2021 were around 35,000 crs in arbitrage funds, 15,000 crs in floating rate funds and around 7,000 crs in Bond ETFs and other roll down products “ he added.
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