The Hindu Business Line : Long-term debt funds' asset base continues to shrink

LONG-TERM debt funds continue to remain nobody's children, if the latest redemption data is any indication. These funds as a category saw their assets deplete further in August, and with little respite expected this month, will carry on the secular trend of erosion that started sometime last year.

Negative factions affecting the debt market have combined to produce this effect, say fund circles while referring to the nearly Rs 200 crore that was redeemed last month.

Aiding the trend is weakening performance turned in by the funds in question. The average returns clocked in August were markedly lower than what they delivered in the previous month.

A study of 30-odd long term debt schemes by IDBI Capital Market Services indicates that their total assets stood at about Rs 3,120 crore, accounting for a mere 2.4 per cent of the industry in August.

Mr Pankaj Razdan, Managing Director, Prudential ICICI MF, is of the view that it may be difficult for these funds to attract fresh investments if market conditions remain unchanged. "With popular sentiments tuned to equity, the (long term) debt products are not really on the market's agenda," he says.

A similar opinion is voiced by Mr Ravi Mehrotra, President, Franklin Templeton India, who points out that investors are generally focused on equity, leaving little room for fixed income and even limited room for long term options on the debt side. He, however, adds a caveat: "This is not to say that their uniqueness is totally lost. Depending on a specific asset allocation requirement, these funds may still hold some value."

For the record, the IDBI Cap review points out how the AUM figures have gone progressively. In March, the long-term debt category managed Rs 4,296 crore, which fell to Rs 3,844 crore, Rs 3,556 crore and Rs 3,485 crore in the next three months. The July and August figures are Rs 3,284 crore and Rs 3,123 crore respectively.

The review also names the top losers for August; heading the list is Prudential ICICI Income Fund - IP, which registered a net outflow of Rs 15.69 crore last month.

The other losers were UTI Bond Fund (Rs 14.21 crore), LIC Bond Fund (Rs 11.21 crore) and Templeton India Income Builder (Rs 10.25 crore).

The immediate future for long-term debt products does not seem to be quite bright, say MF sources, adding that the debt market will probably see significant volatility in the next few months. Increasing concerns over international oil prices are likely to keep fund managers on tenterhooks. The market is now readying for more news flows on the oil front, it is claimed.

Templeton chief roots for SIP

FRANKLIN Templeton has spoken out strongly in favour of SIPs, a weapon that Mr Ravi Mehrotra, President, feels should ideally feature in the arsenal of all individual investors, small or big.

The fund house would like to ensure that its distributors encourage their clients to adopt a regular, regimented approach to investment. "SIPs are a way of beating the ups and downs (in the market). These are particularly relevant in the current scenario, marked as it is by violent stock price movements," he said.

Mr Mehrotra, who has been with Kothari Pioneer MF (the first private-sector player to start business), is of the view that investors will take to SIPs in a more serious manner once they appreciate the merits. "As awareness improves, the preference for systematic allocations will increase," he said.

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