The Hindu Business Line : Investor sentiment turns negative in long-term debt funds

INVESTORS have again relegated long-term debt funds to the backwaters, ending a brief interlude witnessed during the October-November period. For funds in this category, sentiments have turned negative yet again, a trend marked by outflows in December.

The market's obvious apathy to long-term debt products stems from the rather pedestrian performance put up in the closing month of 2005 - a mere 0.72 per cent (annualised), down from 4.75 per cent reported in November.

The declining status is now reflected in assets — Rs 2,600 crore or so as on December 31, 2005 (considering some 30 schemes), which is only 1.8 per cent of the total assets managed by the MF industry.

Figures collated by IDBI Capital indicate that December saw a net outflow of over Rs 230 crore. This is way different from the Rs 106 crore gained in October last. The overall bearish scenario prevailing in the debt market is cited as the prime reason.

Some of the top losers in December are Prudential ICICI Income Fund — IP, HDFC Income Fund, Kotak Flexi Debt and UTI Bond Fund. The outflow numbers range from Rs 17.6 crore to Rs 55.6 crore.

The subdued performance may be attributed to the rising interest rates scenario amidst the general bearishness in the debt market, the intermediary has mentioned, adding that investors should maintain abundant caution with respect to the long-term bonds category.

As fund circles point out, these schemes have portfolios that are not too difficult to comprehend. IDBI Cap puts the end-December allocations to cash/call at 15.75 per cent and to bonds at 54.75 per cent. Average exposure to Triple A-rated paper is 59.47 per cent.

In comparison, short-term debt funds recorded a larger net outflow of over Rs 1,600 crore in December.

At the end of the period, this category accounted for roughly 2.6 per cent of the industry's assets. Incidentally, both short- and long-term floaters witnessed net outflows during the month.