Fixed maturity plans bear brunt of burst in redemptions

In yet another blow for the mutual fund industry, fixed maturity plans (FMPs), which were the darling of the market in 2011, are seeing a burst of redemptions, report CNBC-TV18's Mitra Joshi and Archana Shukla.

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The markets are volatile, liquidity is tight and investors are choosing cash over investments. Fixed maturity plans, pure-debt products which were the investment of choice through 2011 because they offered better yields than fixed bank deposits, are feeling the brunt this year.
Against an inflow of Rs 81,100 crore so far this year, over Rs 88,500 crore worth of FMPs have been redeemed. And experts say there's more pain to come.
Akshay Gupta, CEO, Peerless Mutual Fund, explains, "There is an outflow in FMPs while there is no concomitant inflow into FMPs. My sense is that till the yields again go up due to the liquidity mismatch in the money market system, there will not be inflow into FMPs."
Mutual fund distributors add that there have not been renewals in this segment and open-ended funds are turning beneficiaries.
Deepak Khemani, independent financial advisor, says, "The investments are going into bond funds, short-term income funds and gilt funds. As the data suggests, there the sales are more than redemptions."
A Balasubramanian, CEO, Birla Sun Life Mutual Fund, says, "The good trend on fixed income will emerge where there is  a downturn in interest rates and that's the way forward."
But till that happens, debt instruments will continue to suffer.