Amit Tripathi, Head – Fixed Income, Reliance Mutual Fund says that advisors should recommend debt funds as asset allocation products.
Historically, retail investors have not taken a shine to debt funds in a big way. Is it because debt funds are too complex to understand or is it because of advisors preference for selling equity funds?
Historically retail investors have not patronized debt funds in a significant manner because fixed deposits have traditionally been used as the standard investment vehicle for investor’s debt allocation. There has not been adequate communication/investor awareness/right selling as far as debt funds are concerned. This has resulted in this notion of complexity about debt funds. MFs have only recently (last 3 to 4 years) started offering lifecycle / all weather funds on the debt side, which will show impact over a period of time, in terms of retail participation. Recent moves by SEBI will also encourage more MFs to reach out in Tier 2 and Tier 3 cities, which have been largely untapped till now. Finally, based on advice by distributors and advisors, as investors start looking debt funds as an asset allocation product, instead of a seasonal product, the penetration will increase.
You have recently launched Reliance Yearly Interval Fund which aims to limit interest rate volatility. Tell us more about the strategy of this fund? Which kind of investors is the fund suited for?
This fund is suited for people who traditionally have been investing in traditional products and have a conservative risk return profile as the investments will be in highest quality short term (up to 1 year) money market and debt instruments including bank CDs. Being large scale institutional investors, MFs will get benefits of scale in terms of rates on these investments, which many a times are better than what is available to retail investors in the other products available in market. Most important, an interval fund is very tax efficient, as the investors can choose to continue in the interval fund after each one year period, and hence get indexation benefits for the time they stay invested. This works better than a one year FMP where these indexation benefits are not always available. Tax benefits will be as per the current income tax law.
How is RMF taking the concept of debt funds among retail investors?
As highlighted, debt funds offer a variety of solutions for all types of investors & needs. From a retail debt perspective, it is important to distinguish products for savers and investors. Debt products in MF offer solutions for both these categories.
Reliance Money Manager Fund caters to saving needs. This scheme predominantly invests in short maturity money market instruments, with high credit profile and low average portfolio duration. In a way, it is used as a means for short-term cash management by various kinds of investors.
With Reliance Any Time Money Card an investor is able to access his funds without any load from the primary scheme, Reliance Money Manager Fund/Reliance Liquid Fund – Treasury Plan anytime anywhere. Reliance Any Time Money Card is a mutual fund linked Debit Card with the added benefit of easy and free transactions at all Visa ATMs across India.
Reliance Regular Savings Fund takes care of investor capable of bearing moderate level of credit and duration risk over a 15 to 18 month period. Since the fund is purely run with accrual approach, it would remain ideal for investors looking at potentially higher return with tax advantages & liquidity.
Investors wanting a regular income stream can consider Reliance Monthly Income Plan. This is a hybrid fund with allocation to debt and a marginal allocation to equity up to a maximum 20%. It is ideal for a predominantly fixed income investor with a marginal appetite for equity risk. The investment horizon in this fund should typically be two years or more so that the long term benefit of having a marginal exposure to equity pays off.
Our Reliance Dynamic Bond Fund is all weather fund which captures different opportunities due to interest rate movements. It constantly aligns to changing fixed income scenario. The fund has dynamic asset allocation structure enabling complete flexibility in investment in debt instruments across yield curve & category of instruments including corporate & government bonds and money market instruments. Ideal funds for Investors who want to make allocation to fixed income to take advantage of interest rate movements and at the same time do not want to time the markets. So it makes a passive and long term investment for investor, while being managed actively and dynamically, aligning to varying market conditions.
This is part I of the interview.
