Investors are redeeming from debt funds to invest in high yield tax-free bonds.
Attractive yields offered by the recently launched tax-free bonds have lured many investors, especially HNIs. Mutual fund industry officials and distributors say that clients who had invested in long duration funds have redeemed and parked their money in these tax-free bonds.
Distributors say that HNIs who have stayed invested till one year exit load period in bond funds are preferring to move out.
“We are in a stagflation since the last three years. Liquid funds have outperformed equities and bonds. HNIs are moving to tax-free bonds since they are seeing risk in debt funds. Equities have also not performed well,” said Vinod Jain of Jain Investment.
Sarath Sarma, Executive Director & Sales Head, IDBI Mutual Fund said that uncertainty in debt markets is leading HNIs to look for a safe haven. “The industry has seen redemptions from dynamic bond funds in the last ten days. Long duration funds have yielded 6 – 7% return in the past one year. They are looking for options beyond debt funds. Investors who are looking to exit from the secondary market may not get a premium since the supply will be large. So, they’ll have to remain invested for a longer duration in these tax-free bonds.”
|
Category |
One year point to point returns |
|
Income |
6% |
|
Gilt Medium & Long Term |
3% |
|
FMP |
8% |
|
Equity - Large Cap |
5% |
|
Source : Value Research |
|
The bonds which have hit the market recently have received good response from investors.
India Infrastructure Finance Company Ltd (IIFCL’s) second tranche of tax-free bonds which hit the market on December 09 got oversubscribed on day one. IIFCL’s bonds were offering 8.66%, 8.73% and 8.91% for 10, 15 and 20 years respectively for HNIs.
Housing and Urban Development Corporation (HUDCO) and National Thermal Power Corporation (NTPC) have come out with their tax free bonds. HUDCO is planning to raise Rs 2439 crore while NTPC raised Rs. 1750 crore.
These bonds which are backed by investment grade ratings are giving bank deposits and bond funds a run for their money.
“Investors have redeemed from liquid, short-term and long term bond funds to lock in the high interest rates offered by these bonds. They didn’t want to miss this opportunity as they feel such high rates may not be available in the coming months,” said Gajendra Kothari of Etica Wealth Management.
