More income funds in waiting list
Mutual Fund - New Fund Offers (NFO) are making a come back after a lull
phase in past few months, thanks to the bullish equity market and
favorable economic sentiments. Thirty four funds are waiting for
approval of Securities and Exchange Board of India (Sebi) since March
2009. Out of 34 funds, nearly 14 funds are type of income funds
(11-close ended and 3 open ended). 8 funds are debt funds, 6 equity
funds, 3 funds are category of Exchange traded funds (ETFs). ICICI
Prudential mutual fund plans to launch ICICI Prudential Gold Exchange
Traded Fund. Recently, Axis mutual fund has entered the mutual fund
business and hit the market with launch of two schemes of Axis Treasury
Advantage Fund (debt category) and Axis Liquid Fund (liquid fund
category).
With volatility in stock market remaining high, fund houses
have started betting more on debt and income funds. Almost 65% of the
NFO's that are waiting for approval is of debt and income funds.
Technically an Income fund and debt fund are considered similar as they
invest major portion of corpus in debt securities. Debt funds are
gaining grounds with falling inflation numbers in the recent past. This
in turn led to fall in interest rates, which was a push up factor for
debt funds because of inverses relation between debt papers' yield and
interest rates. It is noteworthy that the annual rate of inflation,
calculated on point to point basis, stood at 0.70% (Provisional) for
the week ended 26 September 2009 as compared to 12.08% during the week
ended 27 September 2008.
In addition, with the revival of global economy, stock markets are
currently witnessing another bull run with BSE Sensex crossing a new
high of 17000 marks after 17 months. Hence we could see equity NFO's
reviving with market rally. Strong hope of inflows into the markets
through FIIs is also pushing the fund houses to focus their launch on
equity oriented funds. As per Sebi's data, FIIs had bought equities of
Rs 69634.80 crore from March 2009-14 October 2009.
However on the flip side, we still feel the flavor for launching
equity funds is subdued owing to entry load ban with effect from 1
August 2009. From March 2009 till 14 October2009, only 6 equity funds
have filed their documents with Sebi. Even though the entry ban proves
beneficial from investor's point of view, fund houses and distributors
find it less attractive as their income level has been restricted. This
has indeed suppressed considerably the number of launches under equity
schemes.
Recently benchmark indices are rising thus to get good returns from
investments in securities that track particular index, fund houses are
interested in exchange traded funds (ETFs) especially the gold ETFs.
The increase in price of gold, demand and inflows has made Gold ETFs an
attractive investment options. There are 3 ETF in waiting list for Sebi' consent.
Outlook
In the past few months, stock markets have risen considerably. Even
interest rates, which were at double digits in October 08, have slipped
substantially.
However, with both consumer and wholesale price indices on the rise,
there are indications that interest rates will not fall further.
Worries on inflation will lead the RBI to signal some rate increase/
liquidity tightening, keeping in mind the growth in the economy and
rising inflationary pressures. However RBI has maintained that it will
keep the accommodative policy till it sees definite signs of industrial
recovery. It has to tread the fine balance between sustainable growth
and creeping inflation, mainly fed through supply factors.
Meanwhile the investors willing to invest in debt mutual funds in
near term can invest in short term debt funds owing to uncertainty
about interest rates and may avoid medium to long term funds. The ultra
short-term investor can park their funds in liquid funds for a few days
or weeks. Also, gilt funds are not good investment option in the
present scenario. This is because they are the first to be impacted in
case of a rate rise which is expected soon.
Fixed maturity plans (FMPs) and monthly income plans (MIPs) could
also be good options as they will lock into high interest rates and
will give stable returns. Also, there are taxation benefits for FMPs.
That is, an investor will get double indexation benefit on a scheme
that is for more than a year. MIPs are good for investors, who do not
mind a little equity in their schemes. Typically, MIPs have upto 15 per
cent of their money invested in equities. This improves their returns
when the equity market is booming.
The investors are bestowed with wide variety of options to choose
from, but an investor should select the scheme that suits their
risk-taking ability and time horizon. Though there are other factors also which have to be considered.
