Fund houses roll out debt interval schemes

Fixed Maturity Plans (FMPs) are paving the way for debt interval schemes as more mutual fund houses are launching these cost-effective schemes after fees for new filings were raised last year.

Since March 2007, 12 fund houses have launched debt interval schemes, mobilising over Rs 4,000 crore, according to mutual fund tracking company Value Research.

Other fund houses like Birla Sunlife Mutual Fund, Lotus India Mutual fund and LIC Mutual Fund have filed offer documents with the Securities and Exchange Board of India (Sebi) for debt interval funds.

Interval funds offer load-free subscription and redemption facility in the intervals. For instance: If it is a quarterly interval fund, then no subscriptions are permitted between the intervals stipulated by the fund house, but redemptions are allowed after paying the load amount.

"We launch funds keeping in mind the regulatory environment, the client's needs and the market infrastructure. FMPs have been successful products over the past couple of years. We have launched the quarterly interval plan based on customer needs. Though we haven't launched any monthly interval scheme yet, we can launch it if the client demands it," said Mahendra Jajoo, Head-Fixed income, ABN AMRO Mutual Fund.

Since FMPs charge low expense ratios, the margins from managing these funds are wafer-thin. Last year, Sebi hiked the filing fees for mutual funds to 0.03 per cent of the total amount raised subject to a minimum of Rs 1 lakh.

Earlier, fund houses had to pay a flat filing fee of Rs 25,000 to launch an FMP.

While this meant more revenue for the regulator, launching fixed maturity plans, particularly the ones with short tenures, became unattractive for funds.

"Debt interval funds are being launched mainly as a result of the costing advantage. Whether they are quarterly, or monthly interval funds would depend on the demand for them," said Rajiv Shastri, Head- Alternate Businesses (Advisory - Fixed Income & Equity), Lotus India Mutual fund.

Fund managers said the emergence of debt interval funds is not likely to spell the end of the longer tenure FMPs since a quarterly or monthly scheme can only service some of the market.

In fact, FMPs and debt interval funds can bring some element of planning to mutual fund's debt schemes, said fund managers.

Till August 2007, fund houses launched 455 FMPs to raise Rs 72,837 crore.

In September alone, 34 FMPs have been launched. Most funds seem to be launching a careful combination of FMPs and debt interval schemes.