The Hindu Business Line : `Close-ended schemes important at this stage'

AN influential section of the asset management industry is lobbying hard for longer duration fixed-income funds, preferably ones that are laced with a modest equity allocation. Life, after all, has not lately been a bed of roses for debt fund specialists, not with conventional options generating lowly returns.

Mr Binay Chandgothia, Deputy CIO and Head - Fixed Income, Principal Mutual Fund, is also willing to back the idea of introducing such schemes. "A five-year fund will probably do wonders for investors who have been into traditional debt products," he said.

Excerpts:

Why do you feel close-ended schemes are important at this stage?

Let me be blunt: Investors in debt funds have generally seen returns tapering off over recent years. Despite the growing penchant for equity, many of them will be looking at new ways to adapt their asset allocation strategies to the changing situation. And, as things stand, conventional debt products will not meet their requirement.

Close-ended funds, especially the three- or the five-year variety, may help them in this regard. Such schemes need to have some equity exposure too. The idea is simple - investors may well consider holding their allocations till maturity with a view to reduce interest rate risk to the maximum extent possible. The involvement of equity in the portfolio, even if it is to a marginal extent, will hopefully play a significant role in optimising their returns.

Is Principal MF interested in launching such funds?

Well, we will actively consider them. I believe a latent demand for such products does exist. A number of investors are likely to express more than a passing interest in close-ended schemes of this nature. As I have said before, the fact that a three-year or a five-year structure will also dabble in stocks should attract them.

Let me add here that we have recently conceived a few equity products as well. One of them is a scheme for investing in stocks drawn mainly from the Nifty Junior index, which, as you know, accounts for a major part of the total market capitalization. However, I cannot tell you more about this at this juncture.

Are you saying that the days of the so-called conventional schemes are over?

Not really. A section of the market will continue to root for short-term options, including liquid funds. Floating rate schemes will also have their advantages, depending on market conditions. The point is, these funds will serve a certain purpose and some clients will keep on using them to meet their short-term needs. Wholesale investors will particularly want them. It will all depend on what their requirements are.

What are your main concerns at this juncture?

Let me first refer to the fiscal situation. That has been a key issue for fund managers, big or small. To put it simply, our worries on this front remain. Major changes in other factors affecting the debt market are not likely to happen in a hurry. The liquidity scenario is okay. But one has to keep an eye on oil prices. A sudden change in oil dynamics can upset a lot of calculations and investment strategies can also suffer as a consequence.

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