Mutual funds see few takers for fixed play
In what is a clear indication of increased aversion to risky financial investments, investors are telling mutual fund distributors that they are not keen on fixed maturity plans (FMPs) with heavy exposure to real estate and non-banking finance ent...
By Nishanth Vasudevan, ET Bureau |
MUMBAI: In what is a clear indication of increased aversion to risky financial investments, investors are telling mutual fund distributors that they are not keen on fixed maturity plans (FMPs) with heavy exposure to real estate and non-banking finance entities. The reason being heightened concerns over deteriorating financial health of such companies amid rising interest rates and non-availability of cheaper money.
The lack of interest in such FMPs, despite these companies offering higher rates in comparison with manufacturing entities, comes at a time when there has been a general pick-up in demand for this product. FMPs have been a major draw for investors in recent times, as returns are locked-in at the start of the scheme and are perceived to be a proxy for bank deposits.
���There has been feedback by investors about their reservations on such FMPs. It looks like mutual funds are also taking the such inputs seriously, as FMP returns have been more or less in line with movement of yields,��� said Mata Securities��� national head-mutual funds, Sameer Kamdar. FMPs, with three-month tenure, are returning 10.25-10.50%, while, with the ones with one-year lock-in fetch 10.50-11.25%.
Most distributors agree there is no major divergence in returns of FMPs, which indicates that exposure to real estate and finance companies may be within limits at the moment. An FMP invests in a variety of fixed income instruments such as government securities, money market instruments and corporate bonds. ���If these mutual funds were investing in real estate companies in a big way, returns in such FMPs would have been as much as 13-14%,��� said a mutual fund distributor, who services institutional and high net worth clients.
Cash-starved real estate and finance companies are believed to be offering 13-16% for short- and medium-term funds of late, while manufacturing entities offer roughly 9-11%. ���Many developers have stretched themselves operationally, and borrowed heavily, to benefit from the real estate upturn of the past three years.
The current slowdown in demand for realty, coupled with declining internal accruals and reduced funding options, exposes them to the downside of this aggressive strategy,��� said ratings agency Crisil���s head-corporate and government ratings, Akash Deep Jyoti, in a research note.
ADVERTISEMENT
A section of the market note that the financial condition of some real estate companies have worsened to such an extent that there are fears of defaults. In such a situation, it comes as little surprise that investors��� prefer FMPs, with focus on manufacturing companies, despite lower returns.Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
