Five fund houses have extended their NFO period in FMPs in December.
Fund houses are finding it difficult to mop up the requisite target of Rs 20 crore in their FMPs and as a result of which five fund houses had to extend their NFO period. In fact, in November, two fund houses failed to collect the minimum corpus (Rs 20 crore) and ended up by returning back the money to investors.
Fund officials say that this slowdown in FMPs is largely on account of volatility in bond yields, growing appetite for tax free bonds, decreasing credit quality of papers and unavailability of double indexation benefit on FMPs less than 15 months.
SEBI rules state that NFOs of FMP can be kept open for subscription for a maximum of 15 days; however, many fund houses prefer to launch such schemes with a shorter NFO window of 1-3 days keeping in mind the interests of institutional investors. The short NFO window in FMPs ensures that the money collected from institutional investors isn’t kept idle. FMPs with NFO period of 8-10 days are typically designed for retail investors.
Cafemutual found that SBI MF had extended the NFO period of SBI Debt Fund Series – 36 months – 7 from December 04, 2013 to December 06. 2013. Similarly, Axis MF and Religare MF had extended their NFO period from December 04, 2013 to December 11, 2013 and from December 23, 2013 to January 02, 2014 respectively.
Schemes that had to extend their NFOs
|
Schemes |
NFO Launch Date |
NFO Closure Date |
NFO Extended Date |
|
SBI Debt Fund Series – 36months - 7 |
29-Nov-13 |
04-Dec-13 |
06-Dec-13 |
|
DWS Fixed Maturity Plan- Series 43(DFMP-43) |
04-Dec-13 |
04-Dec-13 |
06-Dec-13 |
|
Axis Fixed Term Plan - Series 44 (91 days) |
03-Dec-13 |
04-Dec-13 |
11-Dec-13 |
|
LIC Nomura MF Fixed Maturity Plan Series 73(366 Days) |
12-Dec-13 |
16-Dec-13 |
17-Dec-13 |
|
Religare Invesco Fixed Maturity Plan - Series 22 - Plan E (368 Days) |
19-Dec-13 |
23-Dec-13 |
02-Jan-14 |
A fund official from one the foreign AMC attributed this slowdown to the decreasing credit quality of CDs and CPs. He pointed out that investors cannot reap the benefits of double indexation in less than 15 month tenor FMPs by investing in December. Most of the funds which had extended their NFO period have a maturity period of less than 15 months. In fact, his fund house has delayed launch of two FMPs till February due to the current slowdown.
“Over a period of time, FMPs have lost their flavor. Also, equity market has showed some recovery in the recent past signaling a shift of investment sentiment,” said Nilesh Sathe, Director & CEO, LIC Nomura Mutual Fund. In addition, yields of CDs and CPs have come down drastically and will not sustain its previous level of 9.5%, he added.
A senior fund official from a large fund house said that fund houses often extend their NFO period due to volatility in bond yields. Karan Datta, National Sales Head, Axis MF said, “Bond yields fell during the month of December due to volatility which has discouraged investments in FMPs.”
Nikhil Kothari of Etica Wealth Management believes that investors have shifted their investments from FMPs to tax free bonds since such these issues offer higher tax free returns compared to FMPs which are taxable.
Another fund official from one of the fund houses who had extended their NFO period said, “There is stiff competition in FMPs. An average of six FMPs are being launched every week for the last 3-4 months and thus a few fund houses are unable to collect the requisite target to launch in their FMPs. Hence, it becomes imperative for a fund house to put every possible effort to raise funds.”
