Equity funds go out of favour as investors pick debt funds

Global uncertainty and market volatility have not served equity funds well, but mutual fund houses are not complaining. After all, debt funds have become a shining star. CNBC-TV18's Mitra Joshi and Archana Shukla report.

Many of the footfalls on Dalal Street have lost their bounce especially those who invested in equities in 2007. Today, their return of that investment amounts to a little over zero. This is reflected in mutual fund investments as well. Money has not only stopped coming in, investors are pulling out as much as they can, even at a loss. Rajiv Anand, MD & CEO of Axis Mutual Fund said, “If we look at the industry level, clearly, there is money flowing out of equities.” But what equity schemes are losing, debt funds are gaining especially because debt funds have given approximately 8-10 percent returns over the last five years. So far in 2012, across categories, Rs 30,000 crore has been pumped into debt funds while equities have added a mere Rs 1,000 crore. This inflow has fund houses smiling. Vikaas Sachdeva, CEO of Edelweiss Mutual Fund said, “It is very healthy for the industry because you are attracting probably a new set of investors who has never looked at mutual funds before. It is far simpler to explain to a retail investor about fixed income rather than explaining about equity.” Experts add that debt funds have also become more attractive because RBI has not moved to cut rates drastically over the last few quarters. Sankaran Naren, CIO - equity of ICICI Prudential AMC, said, “There is a debt investment boom that is happening at this point of time which will continue till interest rates come down.” Fund houses hope this will continue for a while longer because the longer interest rates take to come down, the longer this investment boom in debt funds will last.