Financial Daily from THE HINDU group of publications
Monday, Mar 27, 2006
Financial Daily from THE HINDU group of publications Monday, Mar 27, 2006 |
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Mutual Funds Markets - Outlook Columns - Mutual Confidence FMPs - Evergreen in nature? Nilanjan Dey
The market's current obsession with equity has relegated debt to the backwaters, a trend that anybody who follows the MF industry would realise for certain. However, fixed maturity plans are still going strong. New FMPs have been launched in good numbers, a scenario that proves once again that these products are quite evergreen in nature. An FMP, it may be pointed out, is a close-end scheme, which invests in fixed income securities that mature at the same time as the fund itself. In a way, it is a fairly straight-laced product that often appeals to corporates and other wholesale investors, especially those who wish to do a bit of tax planning. FMPs are seen as a bit boring too - a feature that comes bundled with their predictable character. Fund houses position these products essentially for institutions that need to invest their surpluses for shorter periods.
Hectic action
The FMP scenario, distributors tell us, has been actually quite active, with one plan after the other hitting the market. Let us check out a typical FMP that Standard Chartered MF has mooted recently. An offer document dated March 17 - the reference here is to Standard Chartered Fixed Maturity 7th Plan - relates to a scheme with a duration of six months. It aims to provide for liquidity on the last day of the third month after allotment. The NAV will be made known on a weekly basis. What is so predictable about FMPs? That question will be partly answered by the fact that a fixed-duration product will, by definition, have a pre-determined maturity date. In official language, units under the scheme `will be compulsorily and without further act by the unitholders be redeemed on the specified maturity date at the applicable NAV'. For investors, this inevitability underscores an FMP's significance. What is also important in this context is what may be called as the March/year-end factor. The month, intermediaries suggest, is appropriate for working out 13-month investments, return on which will pave the way for tax efficiency for the investors concerned.
Debt schemes
Let us go beyond FMPs at this stage and turn our attention to other debt products. What sort of returns are these delivering? Are investors happy with the state these are in? Is there scope for change on the debt front? Answers to these questions are being sought constantly by investors, at least those sections which are worried about their over-exposure to equity. It looks that returns from debt will remain tame and uninspiring for some time to come. But this does not mean that nothing is happening on the debt front. For instance, demand for credit is very strong, a scenario that is being typically described as robust and healthy. However, market sentiments in general are not too satisfactory - negative feelings actually seem to be quite prevalent on the debt front. Most fund houses are recommending the use of debt funds to ensure better diversification and asset allocation. A marked revision in their stance is not really expected in the near future. As always, the market will keep an eye on interest rates. Will rates firm up in this country the way many people think these will in the coming quarters? That remains a very big question. Feedback may be sent to nilanjan@thehindu.co.in
Related Stories: More Stories on : Mutual Funds | Outlook | Mutual Confidence
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