MF industry witnesses the rise in popularity of short term debt fund
Open end short term debt funds are gaining more popularity than FMPs with investors. According to industry experts, short term debt funds are more tax-efficient than short term FMPs.
Short-term funds typically try to optimize returns by benefiting from curve dislocations. AMCs have also started shifting their focus as they feel investors have a better opportunity to earn more in short term debt funds.
A top official from Reliance Mutual Fund revealed, “There is an expectation in the market that by March next year the rates will start softening. A lot of people are pushing short time debt funds for the same reason. Currently, investors prefer these products rather than FMPs. “
Karan Dutta, National Sales Head, Axis MF echoed the same view. He stated that short term debt funds are doing well and it is a good opportunity to make money.
“Investors are looking at short term funds because FMPs has direct tax issues and the yields have also started to slow down,” he added.
Similarly, Fidelity Mutual Fund has seen its assets in short term debt funds nearly doubling in last eight months. “We continue to see strong flows in the fund on the back for high portfolio quality and good portfolio yields. With investor skew towards smaller ticket sizes and given concerns around inflation, monetary tightening, short-term funds may perform well on a risk-adjusted basis,” says Ashu Suyash, Country Head and Managing Director, Fidelity International.
The focus of investors is shifting from FMPs to short term debt fund as there is a presumption in the market that the interest rates will soften in the next eight months. If the rates go down, an investor will gain double digit return from debt funds rather than FMPs. FMPs are not too much affected by interest rates.
