As much as Rs 22,000 crore worth of fixed maturity plan (FMP) schemes are going to mature in the month of April and May. Out of this, FMPs worth Rs 12,000 crore have already matured to date.
But mutual fund (MF) industry players say that the money is moving into some of the other short-term debt schemes with rollovers being extremely thin.
“There is redemption in FMPs, but the money is not going out of the industry. Nearly 90 per cent of the Rs 12,000-crore FMPs that matured this month has moved into short- and ultra short-term debt schemes,” said HDFC MF managing director Milind Barve.
According to him, bond funds, which are currently capable of giving over 10 percent returns, are attracting a lot of money. In HDFC MF itself, money is flowing into treasury bond schemes.
However, in March this year, there was a sudden rush among fund houses to launch new FMP schemes. The MFs that launched these products were HDFC MF, Taurus, IDFC MF, Birla SunLife, Principal PNB, Kotak MF, DWS, Religare and Sundaram BNP.
The reason was that investors could avail double-indexation benefits on such funds. Indexation is an adjustment made for inflation on long-term (over one year) capital gains earned by an investor. If one invests before the end of a financial year, then one will be able to avail indexation benefit for an additional year (double-indexation benefit).
However, these schemes flopped as FMPs have come to be perceived as highly risky assets after the stock market crash in October last year.
That fall, during which the Bombay Stock Exchange’s benchmark Sensex lost 23 per cent in October alone, resulted in fund houses seeing a high number of payment defaults by many real-estate companies. At the same time, the MF industry was grappling with a severe FMP redemption pressure and they could not raise enough money due to the liquidity crunch.
According to data, the average assets under management (AAUM) of FMPs at October-end stood at Rs 1,27,080 crore, down by Rs 10,718 crore in a single month. Over 25 per cent of the entire AAUM of the mutual fund industry is in this one product.
However, even while there is redemption in FMP currently, market experts point out that there is no pressure on funds as the money is flowing back into the industry. In the past three years, FMPs were doing fairly well because the interest rate was on the rise. Some schemes were even offering up to 12 per cent last month.
