Tightening pause may shift interest, say MFs.
With the Reserve Bank of India (RBI) hinting at a pause in monetary tightening, domestic fund houses hope investors will regain interest in long-term debt funds. The next few months will show if this is so, they say.
At present, short-term funds (liquid and money market) are the favourites of institutions and banks for parking money. Fund managers say with fiscal situation improving and interest rates peaking, some interest may shift to longer-term funds.
Nimesh Shah, chief executive officer of ICICI Prudential Mutual Fund, says, “It’s a good time for investors to get into long-term and gilt funds, as interest rates are peaking out.”
Agrees Akshay Gupta, CEO of Peerless Mutual Fund: “There is a possibility of such a shift.” However, he says liquidity will remain tight in the coming months due to the various public offers of state companies.
Fund managers say RBI approach is a relief, but add there is no guarantee on further intervention. N Sethuram, chief investment officer of Shinsei Mutual Fund, says, “Though RBI has signalled a pause in monetary tightening, it does not mean we are at the end of it. In case inflation does not come under control, one cannot rule out further intervention. But, yes, the current situation should attract investors to long-term debt funds.”
However, fund managers also note that at present, short-term funds offer high interest rates, which attract institutional investors. If interest rates fall in short-term funds and rise further in long-term funds, there will be a remarkable rise in investor interest in the latter, says the head of debt funds at a mid-sized fund house.
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According to Nandkumar Surti, chief investment officer at JP Morgan Asset Management, “The bond market sentiment is improving. With the fiscal situation improving, long-term funds do look attractive.”
Statistics with the Association of Mutual Funds in India show gilt funds (that predominantly invest in government securities) in the first half of the current financial year saw a net inflow of Rs 339 crore as against a net outlflow of Rs 2,664 crore in the corresponding period last year. In income funds, there was a net outflow of Rs 3,266 crore during this period, while liquid and money market funds saw net inflow rise to Rs 17,087 crore from Rs 7,720 crore last year.