The Hindu Business Line : Discernible drop in indicative yields of FMPs

Losing shines
Indicative yields in FMPs now down at 6% or so in the monthly options.
Investors unlikely to go for liquid funds as returns drop below 7%
Short-term debt products positioned to be more attractive than liquid funds.

Nilanjan Dey

Kolkata, July 20 Indicative yields of fixed maturity plans are consolidating, once again leading to apprehensions that these products are losing part of their appeal in some quarters vis-À-vis deposits.

FMPs, which taken together have grown into a formidable category in terms of variety and assets under management, are also said to be somewhat on the back foot, considering the very discernible drop in their occurrence.

As investment circles point out, FMPs these days generally have lower indicative yields than what were common not long ago — 6 per cent or so at the moment in the monthly options. This, sources argue, is turning the spotlight on short-term debt funds, at least for some sections in the investment fraternity.

Returns from liquid funds have dropped to below 7 per cent, distribution firm SKP Securities has told investors, while referring to the recent dip in frequency. “This has made short term debt funds the best option to look at,” it has pointed out.

Other indicators

The indicative yields in the other options are also an indicator, it is felt. SBI MF’s latest 60-day product, for instance, is referring to 6.8 per cent. The FMP, rated “P1+f” by Crisil, however, is still being billed as a tax-efficient product; in this case, the dividend distribution tax is 12.5 per cent for retail investors and 20 per cent for institutions. There are surcharge and cess to consider as well.

The latest state of affairs on the FMP front, however, will not turn more investors to liquid funds, it is felt. The Liquid Plus category, nevertheless, will not necessarily be a winner. As Mr Devendra Nevgi, CIO, Quantum MF puts it, Liquid Plus products are a shade riskier than normal liquid funds. The average maturity of the former is higher — some have an average maturity of 150-200 days, where schemes in the latter group maintain lower maturity.

“Higher the maturity, more is the risk,” Mr Nevgi said, adding that the rule of maximum 10 per cent mark-to-market (instruments above six-months maturity) does not apply to Liquid Plus, thereby increasing the market risk component further.

Further, some of the Liquid Plus products have initial lock-in periods and exit loads, which liquid funds usually do not have.

Focus shift

Short-term debt products seem to be staging a comeback, thanks to what is being seen as FMPs’ declining influence. The funds in question are usually positioned in a manner so as to make them more attractive than liquid funds. The maturity period here is higher, often 12-15 months on an average.

Investors may wish to step up their exposure to short-term products as these may well outdo liquid funds, especially when interest rates are likely to remain stable over 2-4 months, it is felt.

A wide range of short-term debt funds are available, the three-month annualized returns in most cases being 10 per cent-plus. Data compiled by SKP Securities show several funds — including those managed by Birla Sun Life, HDFC, Principal and Tata — have provided well over 10 per cent over a three-month period.

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