The credit crisis has led to a clear shift towards safety. This is evident by the steady rise in investor accounts or folios in categories like liquid funds, low duration, short duration, corporate bond, and Banking and PSU Funds.
Liquid funds saw the highest jump in investor base (4.23 lakh) in one year.
Corporate Bond Funds saw the second-highest jump (3.01 lakh) in investor base. This was reflected in the Rs 48,918 crore growth in the category’s asset base. This category has clocked 9.34% return in one year.
Short Duration funds saw the third-highest jump in folios (2.12 lakh), with a growth of Rs 35,993 crore in the category’s AUM in one year. Short Duration funds have delivered 9.82% return over one year.
In terms of AUM growth, Banking and PSU Funds saw good traction, with an increase of Rs 55,976 crore worth assets in one year. There was 2.03 lakh growth in folios in this category, the fourth highest. This category has yielded 10.50% return in one year.
While the past returns look lucrative, fund managers caution that it could be difficult to sustain the same return in the future. "The funds have generated attractive returns due to the extraordinary rate cuts and abundant liquidity in the market for over 1.5 years. Short term bonds with AAA portfolio have been the biggest beneficiaries of these rate cuts. The yields on these AAA bonds have now fallen to around 5%. Moving forward, investors should moderate their return expectations,” said R Sivakumar, Head - Fixed Income, Axis Mutual Fund.
Gilt funds added 1 lakh folios in one year as the category benefitted from a series of rate cuts. However, this category suffered net outflows of Rs 1,122 core in August and Rs 483 crore in September. The performance of the category this year so far has been good which would have prompted investors to book profits. Gilt category has delivered 12% return over one year.
Credit risk funds was the wort hit category with a depletion of over 1.50 lakh folios and a decrease of Rs 38,930 crore in assets under management. “Given the current interest rate scenario, investors are largely focusing on fixed income categories having a relatively shorter duration profile, such as low duration and short duration funds. In addition to that, funds with pristine credit quality, especially from categories such as Banking and PSU Fund and Corporate Bond continue to gain traction from investors highlighting their preference for safety in this segment,” says Himanshu Srivastava, Associate Director - Manager Research, Morningstar Investment Advisers India.
Medium Duration
Assets under management in Medium Duration category fell by Rs -9,971 crore in one year. Himanshu said that this category suffered as it houses some credit-oriented strategies. “From March 2020 till June 2020, the category witnessed a net outflow of Rs 10,274 crore. However, since then, the credit profile of these funds has improved with higher investments in AAA or equivalent rated securities. Also, on the duration front, the category is positioned well in the current environment. This would have prompted investors to have a relook at the category,” added Himanshu. Medium duration funds have delivered 3.85% return over one year. A few funds like Nippon India Strategic Debt Fund, Aditya BSL Medium Term, and Tata Medium Term have exposure to credit paper which led to creation of segregated portfolio.
Barring credit risk funds, all other categories saw a growth in folios. Debt funds added 16.22 lakh folios, taking the total folio base from 56.79 lakh in September 2019 to 73.02 lakh in September 2020. Reflecting this growth, the debt fund AUM of the industry grew by 1.32 lakh crore from Rs 11.54 lakh crore to Rs 12.87 lakh crore during the same period. (Only open-end funds were considered)
