Monthly disclosure by Association of Mutual Funds in India (Amfi) showed investors poured Rs 366.44 crore in credit risk funds in January after nine months of abstinence. During these months, this category of funds saw net withdrawal of Rs 56,317.27 crore.
“Net outflows from the category have been showing signs of moderation over the past few months, which eventually resulted in net inflow this month. This is an important development, as it shows that investors are gradually regaining risk appetite, which was severely impacted after the debt crises during the March–May period last year,” said Himanshu Srivastava, Associate Director for Manager Research at Morningstar India.
The run on credit risk funds was triggered by the Franklin Templeton Mutual Fund’s decision to shut down six of its popular schemes last year due to huge exposure to lower grade papers. The issue has more or less been resolved, albeit the Supreme Court had to step in to give the final touches to the resolution.
In January, the number of folios declined from that in December, suggesting that a section of investors chose to move away from this category.
“But the amount of funds mobilised shot up during the month, and the redemption pressure eased, signifying that existing investors, who probably understand the risk-return trade-off in this category better, are now investing more,” said Srivastava. “It will take a while for the category to make up for the assets lost over the years. But it’s a good start, nonetheless,” he said.
The emerging trend is also a commentary on improving credit outlook of Indian Inc. Thanks to support from RBI and the government, debt defaults have been limited, if any, during the pandemic, as more and cheaper money was made available to them. That has helped restore investor confidence on India Inc.
Shift in debt fund trend
January also marked a shift in investor preference among the debt fund categories. Longer duration funds are falling out of favour, as investors believe the interest rate cycle has bottomed out.
“In line with the interest rate scenario in the country, investors continue to focus on fixed income categories having short to medium duration profiles. Hence, categories such as Short Duration, Medium Duration, Corporate Bonds and Banking and PSU Funds continued to receive robust investments,” Srivastava said.
Dynamic Bond Funds, where taking active duration calls is part of the strategy to benefit from the changing interest rate environment, also received good net inflows. These categories received a cumulative net inflow of Rs 16,688.15 crore in January.
Industry experts are advising investors to tweak their strategy further.
“We would continue to focus on shorter-term products within Banking, PSU and corporate bond fund categories, post RBI policy and the recent Union Budget,” said Kumaresh Ramakrishnan, CIO for Fixed Income at PGIM India Mutual Fund.
Love for gold grows
Notwithstanding the drop in gold prices due to the tax rate cut and improving business environment, gold funds continued to grow assets under management. While gold ETFs received a net inflow of Rs 431 crore in December, in January it was even higher at Rs 624.87 crore.
“Gold prices have come off all-time highs touched in August last year. In January, there was a fair bit of price correction. This, along with expectation that gold may do well going ahead triggered good buying, which resulted in net inflows in this category,” Srivastava said.
Gold is considered a strategic asset in an investor’s portfolio, given its ability to act as an effective diversifier, and to alleviate losses in tough market conditions and economic downturns. From January 2019 till January 2021, this fund category has received a robust net inflow of Rs 48,159.4 crore.
