While some fund houses have either deferred the launch of FMPs or returned money to investors, few AMCs have launched FMPs with tenure of three years and above to cater to retail investors.
Union
budget 2014 has made mutual fund industry rethink their business strategy. Since
FMPs are set to lose their sheen with the proposed hike in long term capital
gain tax and change in withholding period from 12 months to 36 months, some AMCs
have started focusing on retail investors by launching FMPs of longer tenure.
Recently, some fund houses have either deferred the launch of FMPs or returned money to their investors. While SBI Mutual Fund has recently cancelled the launch of SBI Debt Fund Series A – 37 (367 Days), it has returned the money which it collected through SBI Debt Fund Series A – 38 (369 Days).
UTI Mutual Fund has decided not to launch UTI Fixed Income Fund – Series XIX-XII (366 days) which was scheduled to be launched at July 16, 2014. In an email to investors, UTI MF said, “As per the proposed Finance Bill 2014, there has been a change in taxation of Debt MF schemes. Hence the new fund offer of the scheme stands cancelled.”
Clearly, there are no convincing reasons for investors to put their money in short term FMPs (12 to 18 months). “Usually, the tax liability in short term FMPs came down to zero due to double indexation benefit. With the move, I am not seeing any good reason to invest in it,” says Hemant Rustagi of Wiseinvest Advisors.
CRISIL data shows that mutual fund industry has assets under management of Rs. 1 lakh crore in FMPs. Majority of investments have come from corporate and HNIs for short term FMPs. Nikhil Kothari of Etica Wealth Management said, “The new tax proposal has killed FMPs having short tenure. Corporate and HNIs will be worst affected. Now, AMCs should focus retail investors who usually invest for long term.”
“Corporate and HNIs investors who usually park their investments in FMPs of 12 to 18 months would not get double indexation benefit and hence will stay away from shorter duration FMPs,” says the sales head of a foreign fund house.
Meanwhile, after Union Budget 2014, a few AMCs – Axis, Reliance, ICICI Prudential and UTI have launched FMPs having tenure of 3 years and above. While Axis Fixed Term Plan – Series 69 and Reliance Fixed Horizon Fund XXVI – Series 35 have a tenure of three years, UTI FTIF Series XIX-XIV has a tenure of over five years. Similarly, ICICI Prudential has launched a debt fund called ICICI Prudential Capital Protection Oriented Fund – Series – VI with a tenure of over three years.
All these issues have NFO window of 8 to 15 days. The FMPs with NFO period of 8-10 days are typically designed for retail investors. Earlier, many fund houses preferred to launch such schemes with a shorter NFO window of 1-3 days keeping in mind the interests of institutional investors.
“Since majority of money was coming from corporate and HNI clients in short duration FMPs, the industry had launched such funds. Now, the tax arbitrage is gone, the industry has shifted its focus to retail investors. In fact, we are also looking forward to launch FMPs having tenure of over three years. It makes sense in the current environment. Both investors and AMCs will benefit,” says DP Singh, Chief Marketing Officer – Domestic Market, SBI Mutual Fund.
Suresh
Soni, Chief Executive Officer, Deutsche Mutual said that his fund house would
also launch FMPs having tenure of over three years. He said, “It makes sense in
the current business environment to launch such funds.”
