The fixed-income category has faced a challenging atmosphere since the downgrade of IL&FS back in 2018. A spate of downgrades of other entities following the IL&FS crisis left some of the fixed-income funds in a serious liquidity crunch as redemptions in certain categories exploded. Temporarily shutting down economies as a means to control the COVID-19 pandemic will have consequences that haven’t come to light yet. Investors generally tend to move towards risk-averse assets in the fixed-income segment during volatile times.
After witnessing sharp outflows in the fourth quarter of fiscal-year 2020, the fixed-income category managed to turn the corner and received positive flows in the first quarter of fiscal-year 2021 and the second quarter of fiscal-year 2021 (as of August 2020). This is despite the fact that flows in the month of June 2020 crashed to Rs 2,861 crore, and in August 2020, the category witnessed outflows worth Rs 3,907 crore. The year-to-date flows in the fixed-income category stood at Rs 83,894 crore. The total AUM of fixed-income segment stood at Rs 12,60,997 crore as of August 2020, which is 12% higher since December 2019.
Short-Duration Funds
The short-duration fund category constitutes around 9% of the total fixed-income funds as of August 2020 and is the third-largest category in the fixed-income segment. On a year-to-date basis as of August 2020, the category witnessed flows to the tune of Rs 15,704 crore.
Amongst funds that witnessed the most flows on a year-to-date basis, SBI Short Term debt fund takes the top spot, having garnered flows worth Rs 6,685 crore. The Axis Short Term takes the second spot, with inflows of Rs 4,571 crore. The Franklin India Short Term fund had the most outflows, worth Rs 4,749 crore. The fund has now been closed since 23 April 2020 on account of heavy redemption pressures.
Credit Risk Funds
Credit-risk funds have been under tremendous pressure over the last couple of years because of a spate of downgrades and defaults, which has led to an exodus of funds from this category.
On a year-to-date basis as of August, the category witnessed outflows of Rs 34,550 crore. Interestingly, the category witnessed outflows in each of the last 17 months. This has led to a massive erosion of the AUM under the credit-risk segment, with assets now totaling a measly Rs 28,530 crore, which is a little over 2% of the overall fixed-income category. Since December 2019, the AUM has dropped by a massive 55%.
HDFC Credit Risk Debt fund has seen the highest outflows for the year to date to the tune of Rs 8,758 crore.
Corporate Bond Funds
The corporate-bond category is among the few categories in the fixed-income segment that has managed to consistently gather flows even during periods when the other categories saw an exodus. The corporate-bond category was the highest recipient of flows in the fixed-income category on a year-to-date basis with Rs 33,622 crore.
The funds that witnessed the highest inflows were SBI Corporate Bond Fund, with approximately Rs 13,769 crore, followed by HDFC Corporate Bond, with Rs 7,592 crore. On the other hand, there were only a handful of funds that have seen net outflows on a year-to-date basis, with the highest outflows coming from Franklin India Corporate Debt Fund, with Rs 627 crore of outflows, followed by Nippon India Prime Debt fund (now renamed Nippon India Corporate Bond fund), with outflows of Rs 508 crore.
Banking & PSU Debt Funds
The banking and PSU debt category is amongst those incepted as a result of the SEBI categorization in 2018. The mandate of the category makes it a relatively safer investment avenue in comparison with some of the other categories that have the flexibility of taking on a higher credit risk. The banking and PSU category continued to get a fair level of inflows as investors chose to park monies into safer options.
In the first quarter of fiscal-year 2020-2021, the category received Rs 20,921 crore, followed by Rs 7,024 crore in the second quarter of fiscal-year 2020-2021 (till August 2020). The category received flows amounting to Rs 27,870 crore on a year-to-date basis as of August 2020. This is despite witnessing outflows of Rs 6,304 crore during March 2020. The banking and PSU debt category has been among the highest recipients of flows, behind only the corporate bond category and the overnight category.
Amongst funds that witnessed the maximum flows, SBI Banking and PSU Fund takes the top spot, with inflows worth Rs 5,004 crore closely followed by Kotak Banking and PSU Debt, which received flows of Rs 4,539 crore.
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Excerpts from Morningstar Fund Flows Report 2020.
