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.
The key benefits to investors from these products are:
The caveats are:
The emergence of these short term retail debt funds represents a strategic asset allocation option to investors. At this time there is also the tactical opportunity to benefit from heightened short term interest rates. I wrote in January about the growing opportunity in the short term debt fund space. The easing of liquidity over the next few quarters may reduce this tactical advantage.
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