Equity schemes leave debt funds floored

Equity schemes of mutual funds are rocking, while debt funds are rolling downhill. Investors are pulling out of debt schemes owing to falling returns as interest rates are inching up.

The average returns for debt schemes vis-a-vis the equity schemes tell their own story. The average movement of prices of debt paper of various maturities falls between 1.18 per cent gains and a 0.6 per cent loss over the last three months prior to December 1, 2004.

On an one-month basis, the returns have ranged between 0.51 per cent and 0.28 per cent, while over the last one week, returns have ranged between 0.87 per cent and 0.09 per cent. 
 

Debt tremors
Fund	Category	3-month returns
Debt:	Floating Rate	1.18
Debt:	Ultra Short-term Inst.	1.17
Debt:	Ultra Short-term	1.10
Debt:	Short-term Inst.	0.94
Debt:	Short-term	0.80
Gilt:	Short-term	0.60
Debt:	Medium-term Inst.	0.29
Debt:	Medium-term	0.23
Debt:	Speciality	-0.38
Gilt:	Medium & Long-term	-0.61
Data as on Dec 01, 2004

The comparable figures for equity schemes over the same period are 19.76 per cent and 12 per cent, 12.63 per cent and 4.21 per cent, 3.16 per cent and a loss of 0.30 per cent.

Fund houses are however not overly concerned over the withdrawals, viewing it as an inevitable consequence of the prevailing situation in the market place.

"We cannot really do anything about it, can we?" queries Rajiv Shastri, vice-president and head of fixed income, ABN Amro Asset Management.

"If corporates find it more lucrative to invest in the markets directly, we cannot stop them from doing so," he said. So the fund houses are busy riding the equity gravy train, rather than lament over the outflows in the debt segment.

Data shows that liquid funds have reported the most outflows in the last couple of months though pure debt schemes have also seen substantial outflows.

Part of the reason for the outflows can be laid at the door of the rising interest rates which has reduced returns for debt funds.

The other reason is that the equity market is booming and large ticket investors have preferred to pull out money from the low-yielding debt funds to seek higher returns in the equity markets.