Fixed income MFs to see robust growth: ICICI Pru

Money flow into the mutual fund (MF) industry is getting polarised into larger schemes, even as the industry in general continue to see redemption pressure, says Himanshu Pandya, senior VP (investments) at ICICI Prudential AMC.

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"One very important trend that has been witnessed over the last one year is consistent flow into fixed income mutual fund products," he told CNBC-TV18 in an interview.
Pandya believes fixed income mutual funds will continue to grow at a very robust pace. Below is an edited transcript of the interview on CNBC-TV18. Q: Are you still seeing consistent redemption pressures every time the market manages to recover a bit?
A: The trend is not as simple. In general, at ICICI Prudential, there are certain schemes where the money flow is steady. The schemes, which have managed to deliver, have long track record and have branded themselves, have continued to receive flows. At an industry level, there is some amount of selling pressure.
Money is getting polarised towards the larger schemes; more performing schemes, which have a long track record. For example, our ICICI Prudential Focused Bluechip, which is a largecap scheme, has consistently received flows. While by and large, as an industry, we have seen net redemption pressure. Q: What has happened across the equity fund experience? In the course of the last few months have you faced redemption pressures? Are people holding steady? What has happened with equities in specific?
A: In terms of the overall figures for the industry, there have been net redemption pressures for the last one year, as well as on month-on-month basis. But it is not across all the schemes. There are schemes, which have done well. A few of them continue to receive money. In general, there is a lot of redemption pressure. Q: The problem is the cracks that are opening up on the fixed income side because of what has happened with yields and this fear of outflows. What exactly has the experience been on fixed income funds for you guys and what still remains the more lucrative end of that? Do you go with short-term, do you go with gilt? How do you play this?
A: One very important trend that has been witnessed over the last one year is consistent flow into fixed income mutual fund products. If you see year-over-year, the fixed income mutual funds have grown by almost 40 percent and on a month-over-month basis they are growing at 6-7 percent.
Clearly, the view at large that seems to be prevailing is that interest rates are likely to fall over the next one or two years and therefore duration fixed income products are likely to benefit from this sort of interest rates. Not only the retail investors, the high networth individuals (HNI) investors, but also the institutional investors have started giving substantial allocations to duration products.
That is the reason why duration products, which is almost now over one-third of the mutual fund assets under management (AUM), has seen a scorching pace of growth over the last one year and in the coming future we believe that this trend will continue.
At ICICI Prudential, we believe that the softening of interest rates is impending over the next one to two years. So fixed income mutual funds will continue to grow at a very robust pace.