Introduction of direct plans has led corporates moving to direct plans in a big way. A recent study done by CRISIL shows that investments in direct plans of liquid funds touched Rs. 1 lakh crore in June quarter from Rs 24,400 crore in March quarter. Direct investments AAUM touched Rs 2.14 lakh crore in April-June 2013, up 70% from Rs 1.27 lakh crore over the March quarter.
When asked about the impact of introduction of direct plans on wealth managers at a recent Morningstar event, Vishal Kapoor, Head, Wealth Management, Standard Chartered Bank said that companies would want to save five basis points when there is an option of direct plan. He pointed out within the long term bond fund category, the divergence in performance of the best performing and worst performing bond fund was a high as 10% last year. “Earlier fund managers were happy if they outperformed their peers by 50 basis points which is not the case now. Product performance is getting diverse. Advisors are keeping track of what fund managers are doing. Product performance is diverging and the value of research is very vital. For a large part of the market the relevance of advisors remains very high.”
In a panel discussion titled ‘Fixed Income: Which Avenues Look Lucrative at this Stage & Outlook for 2014’, Maneesh Dangi, Co-Chief Investment Officer, Birla Sun Life AMC said that the markets have already priced in a 25 basis points hike which is expected in the forthcoming RBI policy meet. “The market has priced in a 50 basis points hike for the next three months. Marginal Standing Facility (MSF) would be brought down. 3/4th of the impact of Federal Reserve’s tapering is priced in and the impact on Indian markets will be lesser.”
Dhawal Dalal, EVP & Head, Fixed Income, DSP Black Rock Investment Managers, too echoed the same view. “We are watching global markets carefully. A 25 basis points hike is expected which the market has already priced in. If there is a reversal of flow from Asia then both India and Indonesia will be impacted.”
Shobhit Mehrotra, Senior Fund Manager & Head of Credit, HDFC AMC said that fund managers are today conscious of who they are lending money to. “We are seeing that downgrades are happening more than upgrades. We are seeing restructured assets of banks and NBFCs rising. At this time we are very cautious on which kind of companies we would want to take exposure to. That is why the mutual fund industry is not seeing any major stress in the portfolio.”
High yields have kept debt funds popular which is evident by Rs. 43576 crore net inflows in the category in the last six months. However, the recent volatility seen in debt markets following the RBI measures has led investors to a flight of safety within the debt funds category.
“Few customers are upset at seeing negative returns in their portfolios because they had chosen a relatively safer option by trying to move out of equity. Investors, especially those who had invested in a single category of product felt the pain more than those who had invested in a diversified portfolio. Investors are preferring to preserve their capital as a result of which we are seeing that FMPs and capital protection funds getting popular.”
Besides debt funds, Vishal said that many investors are preferring to lock in yields in tax free bonds and He said that the industry is looking forward to the introduction of inflation index bonds.
Dhawal Dalal of DSP Black Rock made a case for FMPs which still offer excellent risk adjusted returns for retail investors.
Maneesh recommended short term bonds funds for investors with a lower risk appetite and long term bond funds for investors who are ready to take some risk.
