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Sharvari Patwa

Mumbai, March 20 With 195 fixed maturity plans totalling over Rs 16,000 crore headed for maturity by April end, fund managers are hoping that some of the money will be reinvested in ultra short-term funds and liquid funds.

These funds constitute 25 per cent of the total asset base of Rs 61,950 crore (under 380 FMPs) as on February 28, 2009, according to data provided by Value Research.

FMPs have gone out of favour, after SEBI mandating compulsory listing for them last December and also abolishing the practice of providing indicative returns for them.

A lot of schemes which will get redeemed are fixed maturity plans based on the ‘double indexation approach’ which typically mature after the financial year ends, said Mr Badrish Kulhalli, Senior Fund Manager-Debt, Principal PNB Asset Management.

In “double indexation’” oriented FMPs, investors enter just before the end of a financial year and withdraw just after the end of that fiscal, and are usually invested for a period of 13 months. This ensures the applicability of indexation benefits for inflationary changes in two years which helps them save tax.

It is expected that a lot of money might be invested in the ultra short-term funds and liquid funds once the FMPs mature in April, said Mr Mahendra Jajoo, Head of Fixed Income & Structured Products, Tata Mutual Fund.

Relatively safe portfolios coupled with positive returns make the ultra short-term funds category an attractive investment avenue for investors. They are basically conservative products with typical maturity periods of 3, 6, or 12 months.

Even short-term bond funds which have a maturity of 1-3 years are being seen as a good investment option as the overall outlook on interest rates is still positive, he added.

Fifty per cent of the FMP money that will be released will be accounted for by corporations, the rest largely by high networth individuals, and a minuscule portion by retail investors, said Mr Waqar Naqvi, CEO of Taurus Mutual Fund.

Fund houses are trying to keep their customers invested in their own schemes as they redeem in April. “We will make an effort to retain the money in our fund house in FMPs or some other alternative fixed income products,” said Mr Srinivas Jain, Chief Marketing Officer, SBI Mutual Fund.

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