Banking & PSU funds and corporate bond funds are the flavour of the season

Other than money market funds, liquid funds and ultra short term funds where most corporates park their money, banking & PSU funds and corporate bond funds have recorded highest inflows so far this fiscal i.e. between April and August 2019, shows the latest AMFI data.

While the banking & PSU funds witnessed a net inflow of Rs.15,656 crore in April-August 2019, corporate bond funds saw net inflows of Rs.11,324 crore in the corresponding period this fiscal. Among the 16 debt fund categories, banking & PSU fund category has seen the second highest inflow this fiscal. The corporate bond fund category is at the fifth spot.

A banking and PSU fund invests at least 80% of its total assets in debt instruments of banks, public sector undertakings, and public financial institutions. On the other hand, a corporate bond fund invests at least 80% of its total assets in AA+ and above rated corporate bonds. 

Experts feel that these two categories have become popular after the series of recent credit events in debt market. Since these two categories hold high quality debt papers and do not take duration risk, most investors have invested in these funds.

Dwijendra Srivastava, CIO – Debt, Sundaram Mutual Fund, “After the recent credit events in debt market, investors are looking at categories that hold good quality paper. However, this does not mean that schemes from all fund houses are witnessing healthy inflows. Only a few schemes that have given around 8-10% return in the past one year have seen good inflows.”  

Dhawal Dalal, CIO-Fixed Income, Edelweiss Mutual Fund feels that that strong inflows into these two categories indicate it is a flight to quality assets. He pointed out that all the 5 categories that have seen good inflows do not take credit risk. Also, the RBI  repo rate cut of 110 bps in 2019 made these funds attractive, he added.

Meanwhile, credit risk fund have become the least sought-after category among debt funds this fiscal. The category has seen an outflow of Rs.13,784 crore so far.