Tax-adj 1-yr FMPs may see double-digit gains: DSP Blackrock

In an exclusive interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee, Dhawal Dalal of DSP Blackrock MF speaks about the current mutual fund trends. He emphasises on fixed maturity plans, where he sees the current trend. "These products are likely to yield double-digit returns," he states.

Below is a verbatim transcript of his interview. For complete details watch the accompanying video. Q: Take us through what kind of returns one should be expecting from the new fixed maturity plans (FMP) products now? A: Banks have been raising fixed deposit rates relentlessly over the last three-four months and with that the bank CD rates and other money market rates are also heading higher. The only difference is that the bank CDs and other money market instruments are yielding better than some of the bank CD rates. We believe that if investors have a definite horizon to invest in fixed maturity plans, are likely to benefit over their investment in fixed deposits. Q: So double-digit returns, more than 10%? A: Tax adjusted - there is a greater possibility that the investors in a one year FMP are likely to make double-digit returns. Q: What are you working with in terms of a deposit rate that you might see for the rest of this year in order to yield those kinds of returns? A: Very clearly, we have seen some of the banks offering double-digit returns on fixed deposits. We believe that if the systemic liquidity continues to remain tight till the end of this financial year, we could see more banks offering double-digit returns. Our expectations are that rates will peak out towards the middle of calendar year 2011. Q: Your fund opens in February, but just across your industry, has there been an increase in these FMPs lately? A: Yes, absolutely. If you look at the AMFI data, there is a very clear trend towards the assets in FMP which have been rising while the other fixed income funds are probably losing assets as corporate investors are pulling their money out to put in their own capex plans. At the same time while fixed maturity plans are offering much better tax adjusted returns, there is a very clear trend towards investment interest in fixed maturity plans. Q: Would you go as far as to say from the evidence at DSP Blackrock per se that there is a bit of a shift from equity to fixed income products? A: We are yet to see that. Our aim is to reach out to those equity investors who are cautious in 2011 and to offer them the other attractive investment opportunities in the form of fixed maturity plans. If they have a finite horizon to invest in fixed maturity plans, they should definitely consider investing in fixed maturity plans. DSP Blackrock Mutual Fund has a huge amount of equity investors and we are planning to reach out to them.