The Hindu Business Line : `Investors veering towards floating rate funds'

MARKETING functionaries working for fund houses are a worried lot these days. They are facing a tough time trying to convince investors about the merits of taking fresh exposure to equities and other relatively risky options.

People are, in fact, trying to move into what are generally considered more reliable investments. "We are seeing large-scale interest in various short-term products. Floating rate schemes are also being accepted by a wider section of investors," says Mr Prabal Nag, head of marketing at JM Mutual Fund. As a result, asset bases of such schemes are swelling. There is no clarity on the equity front at the moment, he notes, hoping that the forthcoming Union Budget may yet give a direction to the market.

Excerpts from an interview.

What is JM MF's experience with liquid and floating rate funds?

These are about the only products that are active in terms of garnering fresh inflows, an inclination that is being reported by the asset management industry as a whole. Investors have seen the numbers that are lately being generated by floating rate funds. This has turned many of them away from other choices on a temporary basis.

We at JM have observed this trend as well. Our liquid fund is getting serious attention, which has resulted in a substantial growth in its corpus in recent months. It now stands at around Rs 2,400 crore. High-end clients who constitute the premium segment are particularly active on this front. We hope to cater to their requirements in the days ahead, especially so if overall sentiments do not change. I expect investors to be vigilant, with an eye on the performance generated by us.

Are investors consciously avoiding equity funds?

That seems to be the general idea. A strong element of caution is guiding the market's behaviour when it comes to equities. One feels that the tendency will sustain, at least till the Budget is presented in Parliament. Whether a clear direction will be established after its presentation is not for me to predict. But it may well set off a new beginning. Investment advisors are largely trying to ensure that their clients are not exposed to too much risk at this critical moment. That is probably preventing a large pool of investors from making additional allocation to equities. However, this is not to suggest that we are discouraging them from making long-term investments in equity funds. Those who have time and patience on their side can certainly take a look at these schemes. A systematic approach, marked by regular investments in small doses, can be adopted to tide over uncertain conditions. A disciplined investor is likely to succeed over a decent span of time.

But then, selling debt products is not an easy task any more...

You are right. Investors, particularly the experienced ones, have become very choosy even when they explore various options on the debt side. Many of them have been traditionally comfortable with debt funds, which have delivered decent returns in the past. Mind you, these schemes are not as quirky as their equity counterparts but still have a unique set of risks associated with them. These are also great diversifiers and add stability to portfolios. At the same time, the number of choices available for investors in debt funds has increased over the years. A typical fund house now has a fairly wide range of debt offerings.

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