The country's mutual fund executives might be losing sleep over unstoppable outflows from the equity segment, but they have got a saviour in gilt funds. And they have to thank expectations building up for cuts in interest rate, sooner or later, at the beginning of next year.
Gilt funds, which primarily invest in government securities, have brought relief to the fund industry with a spurt in sales and net inflows over the past two months. In a matter of two months (October-November) mutual fund sector has seen a fresh inflow of over Rs 2,000 crore.
This has turned out to be the largest inflow in gilt funds during the last four years. Last, it was in October 2008 that gilts could garner as much as Rs 3,725 crore as net inflows. According to industry body Association of Mutual Funds in India (Amfi), the previous two months mopped up Rs 1,000 crore each as sales jumped surpassing redemptions with a wide margin.
| Gilt funds inflows & sales (Apr-Nov 2012) | ||
| Month | Net inflows | Sales |
| April | -230 | 209 |
| May | -371 | 163 |
| June | 115 | 349 |
| July | 21 | 268 |
| August | -31 | 294 |
| September | 39 | 240 |
| October | 1,018 | 1,370 |
| November | 1,006 | 1,488 |
| Figures in Rs cr; Source: Association of Mutual Funds in India (Amfi) | ||
The sector's fixed-income heads say that it is mainly on the back of rate cuts hope that investors are flocking towards investment in gilt funds. Going forward, they say gilts would continue to be one of investors' favourite investment avenues.
The mutual fund industry is finding many takers among retail and high networth individuals (HNIs) for gilt funds of late, with the proportion of assets from these two investors' class having risen around 75 per cent over the last one year.
According to Amit Tripathi, head, fixed income at Reliance Mutual Fund, interest rates are seen to coming down over the next 12-24 months, and therefore, there has been an incremental investment in this spehere over the past few months.
Sujoy Das, head, fixed income at Religare Mutual Fund, agrees. "Investors should add duration to their portfolios. I believe government bonds will be one of the biggest beneficiaries of interest rate cuts," he says. He says Religare's gilt fund has witnessed sudden rise in inflows.
Such a large net inflows in gilt assets - not seen in recent years - has pushed the assets under management in the category to Rs 5,426 crore as on 30 November against Rs 3,659 crore on 31 March this year, a rise of over 48 per cent.
The Government has a large borrowing programme to contain fiscal deficit at around 5.3 per cent. However, with the central bank's open market operations (OMOs) of infusing liquidity, bond yields remained more or less range-bound. Fund managers believe that interest rates are peaking out and once rates start climbing down gilt funds will benefit.
Debasish Mallick, managing director & CEO of IDBI Mutual Fund, had said earlier that over the last few years RBI had been maintaining liquidity in the system and was able to reduce inflation by around 200 basis points. And this is raising hopes for rate cuts and helping gilt and dynamic bond funds garner assets faster over the last few months.
Currently, the industry offers 39 gilt funds to investors. With massive inflows in recent months, the overall net inflow in gilt category for the current year stands at Rs 1,567 crore which in the same period last year stood in the negative territory at Rs 926 crore.