Fixed maturity plans have fallen out of favour among investors because of confusion about where interest rates are headed. The assets under management of FMPs fell by nearly 30 per cent to Rs 80, 200 crore during FY-12 (up to February 2012).
And the outflow during the fiscal is likely to be even higher. “March could see an outflow of around Rs. 15,000 – 20,000 crore as a large number of FMPs will mature by March-end,” said Mr Dwijendra Srivastava, Head - Fixed Income, Sundaram Mutual.
During the same period (up to February 2012) the AUM of the mutual fund industry grew 14 per cent to Rs 6.75 lakh crore. The AUM under income funds also grew – by two per cent to Rs. 2.97 crore. Fixed maturity plans witnessed a 40 per cent decline in the average corpus collected by them during the fiscal.
“Money would have flowed into other funds like liquid funds or even equity funds. Even though interest rates were high, cash-strapped companies would have withdrawn investments due to tight liquidity conditions,” said Mr Alok Singh, Chief Investment Officer of Fixed Income, Bharti AXA Investment Managers.
Fixed maturity plans are pass-through vehicles which usually see a spurt in investor interest as interest rates rise. Between March 2010 and December 2011, the RBI raised interest rates 13 times. This period saw the AUM under FMPs growing by around four times making it one of the most sought after products and gaining preference over even the bank Fixed Deposits.
Industry officials say that the average ticket size of an FMP is around Rs 5,000 crore with an average tenure of 3-months. FMPs typically see corporations, HNIs and retail investors buying them owing to the benefits of double indexation. A double indexation benefit refers to the benefits of indexation over a period of two years even though the underlying asset is not held for that period. For instance, an FMP bought in March 2011 and sold in April 2012 will have the indexation benefit for both FY-11 and FY-12. Indexation benefit also adjusts for inflation for the period under consideration.
sneha.p@thehindu.co.in