HNIs and corporates flocked to income funds in anticipation of a rate cut from the Reserve Bank of India (RBI) in its monetary policy on January 29, 2013.
The assets in income funds rose by Rs. 17702 crore to reach to Rs 33,563 crore during the quarter ended December 2012, which is the highest AUM gain over the past eight quarters, shows a CRISIL report. Further, the average maturity of the income funds also rose from 5.49 years to 8.40 years – the highest in the past three years.
HNIs and corporates flocked to income funds in anticipation of a rate cut from the Reserve Bank of India (RBI) in its monetary policy on January 29, 2013.
The exposure to government securities has increased while the allocation to certificates of deposits (CD) and commercial papers (CP) has reduced.
“Income funds have also increased their maturity as portfolios with higher maturity would earn superior returns in falling interest rate scenario. During the quarter, the category increased their average maturity to 8.40 years, highest in the past three years. Further, the CRISIL Mutual Fund Rank 1 schemes have aggressively managed their duration with their average maturity being 12.32 years during the December 2012 quarter. Another portfolio trait observed in the category was the increased exposure to government securities while reducing allocation to CDs and CPs. Allocation to government securities increased to 46% in December vis-à-vis 24% in September 2012. The category also delivered 2.39% absolute returns over the quarter,” stated the report.
Bond prices (Fund NAVs) and yields move in opposite directions owing to which a fall in interest rates will result in a rise in bond prices and positively impact long-term debt fund NAVs (returns). Over the quarter, the yield of the 10-year benchmark government bond 8.15%, 2022 eased by 10 basis points to 8.05%. The 10 year bond has subsequently moved down to 7.88% as of January 24, 2013
Income funds constitute 50% or Rs 3.78 lakh crore of the industry’s total Rs 7.59 lakh crore assets.
