The Hindu Business Line : Short-term surge likely in income funds

THE next few months could well turn out to be boom time for short-term income plans as more and more investors are expected to log on to them. . Returns from these offers, MF circles suggest, will be on expected lines, give and take a few aberrations.

The MFs believe that such schemes will help expand their asset bases critically. However, it is not certain at this stage as to which of these will stand out in terms of overall credibility and stability.

The distributor community has already gone all out to convince investors about short-term options. The selling propositions in this case encompass such concepts as the relatively lower interest rate risk.

The recent softening of interest rates has done its bit to modify the yield variation between short- and long-term securities. Besides, there is a certain degree of increased volatility in long-dated securities. In this situation, medium-term options might prove to be a safer bet, it is being pointed out.

Thanks to Templeton's latest scheme, a beginning has been made towards investing in floating-rate debt instruments in an organised manner. These are instruments where the coupon changes in line with shifts in interest rates.

On the equities side, a number of funds are bringing about key changes in their portfolios on a selective basis. By and large, however, not too many long calls are being taken. An influential section of fund managers is still heavy on sectors such as IT and pharma — a situation that is not likely to change in the immediate term.

With the financial year-end coming nearer, there is increased activity to push tax-saving funds. These funds — `equity-linked savings schemes' is the technical nomenclature — offer benefits to investors under Section 88 of the Income-Tax Act.

Statements put out by funds are also increasingly talking about the latest developments on the corporate front. A certain fund manager's commentary (for January) dwells on the recent trend towards going private. This, the MF says, is a ``step backwards'' as it removes some good companies from investors' reach.

As for proposals on new schemes, HDFC MF has sought the regulator's clearance for a short-term plan. Pioneer ITI's short-term variant will open for initial investment on January 28. IL&FS MF has informed that its recently-launched gilt fund and short-term option under the bond fund have collected Rs 62 crore. Templeton's floating rate income product will close on February 2.

Meanwhile, as transaction trends for the month (up to January 23) suggest, gross purchases of equity were less than gross sales by Rs 403.54 crore. However, gross purchases of debt were more than gross sales by Rs 1,580.35 crore.

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