With uncertainty still stalking the market, short-term and medium-term debt funds are trying to lure customers by lowering exit loads and lock-in periods.
Last week, Deutsche Mutual Fund reduced the exit load of two schemes — DWS MIP Plan A and Plan B — from 1 per cent to 0.5 per cent. UTI Mutual Fund has also reduced its lock-in period for UTI Floating Rate Fund from 90 days to 40 and then further reduced it to 15 days. The exit load too has been reduced to 0.75 per cent.
Others like Reliance Mutual Fund have also slashed the exit load for Reliance FHF (a fixed maturity plan) VIII Series 9 from 1 per cent to 0.3 per cent. This scheme was launched in July and has a six-month maturity period.
The basic idea, it seems, is to make these funds more lucrative for the investors. “By reducing the exit load and lock-in period, they would be able to attract money from investors who are struggling to find a proper investible vehicle in these uncertain times,” said a financial planner.
Value Research Chief Executive Officer Dhirendra Kumar said such moves would help mutual funds to attract money from companies as well who have got back their advance tax money from the income-tax department.
JM Mutual Fund Chief Investment Officer Mohit Verma said, “The funds’ strategy would be to invest in instruments that have a lower maturity period. This will make the portfolio liquid and not affect the performance of the fund when investors withdraw.”
Short-term and medium-term debt funds usually compete for money that would go in banks’ fixed deposit (FD). Banks normally charge a penalty of 0.5-1 per cent on FDs less than a year if an investor withdraws money prior to the maturity date. Cutting exit loads would now bring them at par with FDs in terms of costs.
According to Sandesh Kirkire, chief executive officer, Kotak Mahindra Asset Management Company, the cut in exit loads reflects the competition in the market. Financial experts say that such schemes aim to give returns that are slightly more than FDs because they invest in other instruments like government and corporate bonds, which offer slightly higher returns.
Short-term capital gains tax is levied on short-term debt funds according to the income bracket of the investor. In the long term, the capital gains get indexation benefits.
