The Hindu Business Line : Rate hike fails to impact debt funds

The repo and reverse repo rate hike announced by the RBI in its credit policy earlier this week has not affected the mutual fund industry, particularly the debt funds, according to most industry experts.

Markets had expected the 25 basis points rates hike and had already discounted this hike, therefore avoiding a major churn of assets in the debt fund segment.

"The 10 year G-Sec yields were at 835 levels a week before the hike and post the hike, they were at 825 indicating that markets had already discounted the hike since it was largely anticipated," said Mr Ramanathan K., Head - Fixed Income, ING Vysya Mutual Fund.

"We have not seen much movement in the bond prices since the hike was anticipated," said Mr Devendra Negi, Fund Manager and Head - Fixed Income, Quantum AMC.

"Most of the statements in the credit policy were actually benign and have not affected debt funds. In fact, after the rate hike, we have seen a rally in the markets," said Mr Amandeep Chopra, Head - Debt, UTI Mutual Fund.

Echoing Mr Chopra's statements, most fund managers assured of the upward rally in the markets post the hike. "The rally in the yields is evident because the market was well aware of the hike and there was no surprise on that count," said Mr Rajeev Anand, Chief Investment Officer, Standard Chartered Mutual Fund.

Long term funds `stable'

Fund managers sought returns on the short-term funds while long term funds looked stable. "The markets look pretty attractive at one-year levels and the short-term funds have gathered decent returns. In fact, the market has already discounted another interest rate hike by 25 basis points, said Mr Ramanathan.

"The volume of long term debt funds has shrunk and thus this rate hike has not affected mutual funds," said Mr T.P. Raman, Managing Director, Sundaram BNP Paribas Mutual.

Mutual funds, however, have not deployed a change in their strategy post the credit policy. "We had already positioned our strategies before the hike. Hence there will be no change and as the long term bond yields stabilise, the appropriate funds can be started from there on," said Mr Mahendra Jajoo, head - Fixed Income, ABN Amro AMC.

"Our funds have been broadly positioned and since the credit policy announcement there has been a marked rise in the NAVs of our funds. We do not see too many negatives on account of the policy measures," said Mr Anand.

`Time to lock in'

Mr Sandeep Bagla, Head - Fixed Income, Principal PNB Mutual Fund, said, "it is time for investors to `lock-in', particularly in medium term perspective. Short-term funds have actually seen an increase in investor interest following the rate hike.

Mr Ved Prakash Chaturvedi, Managing Director, Tata Asset Management, said his company's approach wasmore conservative. Tata Asset Management has been at the short-end of the spectrum throughout, thus negating the risks of hike in interest rates.

Mr Chopra of UTI said the liquid category in debt funds remained attractive and the short term funds were able to capture the gains.

But most mutual fund houses bet on being cautious as they go forward and also expect more rate hikes to tighten the liquidity.

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