Investor accounts rise by 1.12 lakh so far in 2020, in two debt categories
When there is fear and uncertainty across investment categories, there is a general rush towards safety. Thus, debt fund investors have made a decisive move towards banking & PSU (public sector undertakings) debt funds. These schemes have delivered superior returns and are relatively safe, with their portfolios largely comprising AAA-rated papers as well as G-Secs (government securities). Gilt funds too have found favour with investors who have been hit hard by defaults of lower-rated securities held by mutual fund (MF) schemes in the past couple of years. These two debt MF categories have added 1.12 lakh folios or investor accounts so far in 2020.
Raking in the inflows
Net inflows into banking & PSU debt funds was up 35.2 per cent over April’s inflows, at Rs 8,873 crore, data released by the Association of Mutual Funds in India (AMFI) showed. Net inflows into this category have more than doubled since January.
The category has added more than 43000 folios in the last five months alone. While banking & PSU debt funds have gained about 4.9 per cent on an average so far this year – the best performing fund in the category has surged by 7.1 per cent. These funds have given 10.5 per cent returns in the one-year timeframe with the best fund soaring by 14.5 per cent. The folio count for the category now stands at 2.05 lakh.
Gilt funds saw a huge uptick in investor interest in April. Net inflows into gilt funds increased nearly four-fold on a month-on-month basis in April following the huge jump in returns. These funds have added more than 69000 folios in the current year. The folio count has gone up by more than 31000 for the category in the last one month alone.
Gilt funds, which rank among the best in the MF performance chart over the past year and so far this year as well, have risen 7.3 per cent so far in 2020 and by 13.1 per cent in the one-year timeframe. “This is the right time for people to be in high grade debt (fund schemes) such as gilt, banking and PSU debt,” said N S Venkatesh, chief executive officer, AMFI. Gilt funds typically benefit the most when yields or interest rates start falling.
The RBI cut repo rates or the rate at which it lends to banks by 40 bps (0.4 per cent) to 4 per cent on May 22 this year, the lowest level since 2000. The apex bank has slashed rates by 115 bps (1.15 per cent) since the lockdown was announced in late-March to curb the spread of Covid-19.
Rising bond prices help gilt funds earn higher returns. “Interest rates are expected to go down further. The RBI is providing liquidity and is also reducing the cost of liquidity,” Venkatesh said.
Debt funds saw net Inflows of Rs 63665.5 crore in May, a nearly 46.6 per cent increase over the previous month. “This is an indicator of returning investor interest and confidence in debt funds. The RBI intervention for the debt market has helped in returning stability in debt funds,” said Amit Singh, head, Investica, an online platform to invest in MFs. “Debt mutual funds have seen a significant recovery in May and we will continue to see this trend in the coming months as stability returns in debt markets,” he added.
However, credit risk funds continue to see outflows and fall in AUMs (assets under management). These funds, which bore the brunt of defaults, have seen net outflows of Rs 5173 crore in May. But this was substantially lower than outflows recorded in April.“The concerns are over for credit risk funds. Redemptions (investor exits) have slowed down substantially. Things have become more or less normal now,” AMFI’s Venkatesh said.