The Hindu Business Line : MFs stay net buyers in debt market despite rate hikes

Mutual funds have been net buyers in debt market to the tune of Rs 7,716.21 crore, according to figures issued by the Securities and Exchange Board of India. This indicates a huge inflow into the debt market despite the recent rise in interest rates and expectations that the rates may increase even further.

Mutual fund managers, however, stress that investments are flowing into liquid funds and short-term bond funds that have a very short maturity period.

There is no decline in value of portfolios due to debt investments, they say.

"It is true that mutual funds have invested heavily in debt markets. But they have invested in short-term debt instruments. The interest rates do not affect these kinds of funds generally. Thus, the rise in interest rates and the rise in inflows into debt market funds do not have a co-relation," said Mr A. Balasubramanian, Chief Investment Officer, Birla Sun Life Mutual Fund.

Liquidity surplus

Mr Sandesh Kirkire, Chief Executive Officer, Kotak Mutual Fund, said that with the beginning of the new quarter in July, there was an overall liquidity surplus, which was invested in liquid funds and short-term funds.

He added that there was no inflow of money into income funds (long-term funds)

Income funds

Income funds, in this scenario, have seen a huge amount of loss of corpus — of almost 90 per cent — from two years ago. "The confidence to invest in income funds will continue as long as the upward bias in interest rates continues," Mr Balasubramanian said.

"The rate hike has affected the long-term income funds, and we are not investing in long-term debt instruments currently. We see this period as a good time for investors to `lock-in' into short-term funds which give better yields. Hence investments in the debt market has increased," said Mr Sandeep Bagla, Head-Fixed Income, Principal PNB Mutual Fund.