MFs Focus on Retailing ST Debt Funds

Posted by: Uma Shashikant on Mon, Mar 14th, 2011

The mutual fund industry is currently aggressively offering open-ended short term debt funds to retail investors  -  a belated but welcome development.  The default choice of most investors is a short term debt product. RBI data shows that 75% to 80% of all bank deposits are held in the 1-3 year horizon. Debt funds have mostly been offered to corporate investors with retail participation somewhat restricted to fixed maturity plans (FMPs).  FMPs from 91-day to 730-day maturities are being routinely offered, but a sharply increasing short term interest rate makes a later product more attractive than the current one, leading to missed investment opportunities for investors.  What funds are doing is to reposition existing products or offer new ones to offer a short term retail debt product to investors. IDFC MF has a Super Saver fund in this space, ICICI Prudential MF and Reliance MF have Regular Saving Funds, DSP Blackrock has re-positioned its monthly income plan as the Savings Manager Fund in this space, and Templeton Income Opportunities operates in the same space.  Read more

Why Short Term Debt Funds Now?

Posted by: Uma Shashikant on Wed, Jan 5th, 2011

The heightened levels of short term interest rates, leading to an inverted corporate bond yield curve has made decisions tough for investors in short term debt funds. It was expected that the liquidity crunch in June, triggered primarily by the 3G auctions, would ease soon.  The persistent shortage of liquidity extending into the last quarter of the financial year has been a surprise to many. Borrowings from the LAF window of the RBI persist, though the volume has reduced from Rs.1 lakh crore plus seen last month. The key factors contributing to the liquidity crunch are: Read more