Majority of FMP investors opting for roll over

Most retail and HNIs have opted to remain invested in FMPs which are getting rolled over.

Majority of FMPs which recently got rolled over have managed to convince investors to remain invested. Industry officials said that around 70% of investors, mostly retail and HNI, have opted to stay put. Some institutional investors are said to have redeemed.  

“Around 70% of investors have opted to remain invested in FMPs. Clients who do not have visibility for the next two years are opting out of roll over,” said Himanshu Vyapak, Deputy CEO, Reliance Mutual Fund.

According to rough industry estimates, around Rs. 25,000 crore worth FMPs are set to mature in August and September. “Those who don’t want to lock in money have moved out. Some investors are redeeming from FMPs which are getting matured and investing in equity funds,” said Kailash Kulkarni, CBO, L&T Mutual Fund.

Meanwhile, more AMCs have started to roll over their one year FMPs in a bid to save investors from paying short term capital gains tax. Most of these FMPs are set to mature in August 2016. After the new tax proposals were announced in the budget, some fund houses had even returned the money collected from NFOs. 

Proposed roll over - FMPs

SEBI rule allows fund houses to roll over their close ended schemes if they get investors consent. Investors who don’t want to continue with the scheme can redeem their investments at the prevailing NAV. However, AMCs need to maintain 20-25 rule (minimum of Rs.20 crore and 25 investors). Investors have to send a written consent to the fund house if they wish to remain invested in a fund which is getting rolled over.

Himanshu says that investors who are opting out of roll over are parking that money in liquid and other short term funds. “The money is not moving out of the industry,” he added.

D P Singh, CMO (Domestic Market), SBI Mutual Fund said that most retail investors have opted to remain invested in their FMP. “Some institutional investors have redeemed and have put money in liquid funds. Majority of retail investors have opted to remain invested in our FMP,” he said.

Post the changes announced in budget, long term capital gains tax on debt funds would attract a tax of 20% after indexation. If investors redeem before 36 months from non-equity funds, it would attract short term capital gains tax.

As a result of this, one year FMP launches have virtually come to a halt. Fund houses like HDFC, Deutsche and ICICI Prudential have now started launching three year FMPs.

Notwithstanding the hike in tax rate, fund officials are optimistic that they can still offer better returns than bank deposits. “The response to rollover has been encouraging. Most retail investors have remained invested. I don’t think fund houses would stop launching shorter tenure FMPs. If we can offer a better yield compared to bank deposit then corporates would be willing to invest in short term FMPs,” said the product head of a bank sponsored fund house.