Debt funds make hay in meltdown

Put up good show in Feb as equity funds falter, says Crisil.

Debt-oriented mutual funds have continued to give positive returns in February, while almost all the equity schemes ended in the negative, a latest study said.

WHY STFS

In the backdrop of interest rates off their peaks, policy rates not expected to go up coupled with strong inflationary pressure, a slowdown in credit growth and a comfortable liquidity situation, STFs present a strong case for their rising popularity

Moreover, with some FMPs (quarterly variety) becoming somewhat uninspiring due to a fixed yield without any chance of an upside, STFs are favourably placed against them

An STF aims at maximising income from a basket of securities, depending on a fund manager's skills

STFs would be a favourable option for investors who wish to have a portfolio positioned between a liquid/ liquid plus fund and a straight-laced income fund.

According to Crisil FundServices, provider of fund evaluation and risk solutions to the domestic mutual fund industry, debt funds showed positive momentum, while equity funds continued to slide in February.

The highest monthly returns came from the liquid fund index, Crisil-LX, which was up 0.66 per cent.

This was followed by the Crisil STBEX, the debt index serving as benchmark for short-term bond funds, and Crisil Fund-dX, the long-term bond funds index.

These returned 0.30 per cent and 0.28 per cent, respectively.

Negative returns in this segment came only from the Crisil MF-Gilt index which ended slightly lower at (0.02 per cent), a Crisil release said.

Meanwhile, all indices with equity components ended in negative over the month. The Crisil Fund-eX, the index for diversified equity funds, declined by 4.34 per cent, Crisil Fund-bX, the index for balanced funds, dropped 3.36 per cent.

Crisil MIPEX, the index used as a benchmark for monthly income plans, was down marginally by 0.13 per cent, it added.

In February, Reliance Mutual Fund continued to top the asset rally with average assets of Rs 93,531 crore, up 11.5 per cent over January.

ICICI Prudential Mutual Fund retained the second spot, with average assets of Rs 59,277 crore, up 3.8 per cent, and UTI Mutual Fund was at the third place with average assets of Rs 52,464 crore, down 7.8 per cent from January.

Most fund houses registered a drop in average assets under management (AUM), except seven, which were able to show AUM growth, the release said.

The industry's average February AUM (including fund of funds) dipped by almost 1 per cent to Rs 5.65 trillion.

"The dip in AUMs was primarily due to uncertainty in the equity markets and tight liquidity conditions. However, inflows from NFOs (new fund offers) and FMPs (fixed maturity plans) helped curtail the fall to some extent," Crisil FundServices Head Krishnan Sitaraman said.

The top three companies in terms of absolute gains in average AUM were Reliance Mutual Fund, Birla Sun Life MF and ICICI Prudential MF. In percentage terms, the top three gainers were Reliance Mutual Fund (11.5 per cent), Birla Sun Life Mutual Fund (8 per cent), and Lotus India Mutual Fund (8 per cent).