Investors with one year horizon should consider income funds and FMPs for a short term says Ganti Murthy Head fixed income, Peerless Mutual Fund
What is your investment strategy for debt schemes?
On debt side, most of the investors invest in liquid funds. As per statutory requirements we cannot invest liquid fund money in more than 91 days instruments. So I follow a ladder strategy of investment.
I ensure my portfolio gets maturity every week. If my portfolio has the highest yield bearing assets in three month, then I invest 51 per cent of the portfolio in three month assets and then rest in two month and one month.
On the outflows side, 5 to 8 per cent of my portfolio needs overnight money and I distribute the rest among one month, two and three month assets. I also have my fund invested in liquid space which takes care of redemptions and other obligations.
From January to till date around 93 schemes have been launched. Do you see the trend continuing?
FMPs have continued mainly because the short term yields have shot up.
If you see the debt market, the yield curve is inverted with short term yield at 10 per cent and long term yield at 9-9.5 per cent. Hence FMPs suddenly have become very popular. If you see year on year, FMPs have shown an absolute growth.
The growth has been immense over the last two quarters. The three month yield is at 10 per cent right now. So corporate are investing to get better returns. Investors are rushing towards FMPs because DTC has proposed some changes in the tax utilization.
The current double indexation benefit ensures that the individual can take indexation benefits for both financial years but with DTC coming into effect the investor will get indexation for one year instead of two years. Hence a lot of people are investing in the 1 year and 13 month FMPs mainly to avail the double indexation benefit.
Where do you see the interest rate heading in the near term?
I don’t see any respite in low yields in the medium term. The liquidity tightness would remain, so RBI is following two pronged strategy of rate hikes and liquidity tightness to ensure money supply is not easy.
We expected the ten year yield to cross 8.25 per cent and 8.5 per cent in the next year in January. It didn’t happen because RBI hiked the rates by 25 basis points in contrast with the industry’s expectation of a 50 basis hike.
The demand for government bonds will be good in April. I expect ten year yield to be between 7.95 to 8.10 per cent whereas 8.10 per cent at the lower level.
What are your views on global bond market and its impact on debt market/bond market?
The concerns for global bond market are how the yields will move in Europe and US.
The ECB first came out saying they would maintain quantitative easiness. But later they changed their decision to withdraw the proposed measures which created turmoil in the market last week which in turn pushed up the yields by 30 basis points. The US is very firm in continuing quantitative easing. Going ahead they are likely to increase their bond purchase. We expect the yields in US to remain stable in the short run with no major movement and yields in Europe depend on what the central bank will do.
For any proper yield movement or proper pricing there should be clarity on the regulators side which was not happening in ECB. If the yields in the global markets rise then what we see is FII outflows from our market to their market especially their investment in debt market. This may result in rupee depreciating which would force RBI to raise rates in order to maintain parity.
What is your near and medium term goals at Peerless MF?
The idea is to make our fund in top quartile as we have already seen our AUM growing to Rs. 5,800 crore this month and for the next quarter the idea is to top that growth.
Which schemes would you recommend to the investors to invest with the medium term perspective?
I suggest FMPs and liquid funds for short term tenure. Investors with one year investment horizon should consider income funds as the short term yield will come down and long term yields are very attractively priced. Also, the government has raised the borrowing limits for FIIs so more demand will come which will lead to gains for long term assets.
