Rally in G-secs has positive impact on MF income schemes

The rally in the Government securities market over the last one month has had a positive impact on the income schemes of mutual funds. These schemes have given investors attractive annualised returns of 15-20 per cent the one-month period.

Bond market

A host of factors including global economic uncertainty, receding probability of the Reserve Bank of India going in for rapid increase in interest rates when major central banks were persisting with an easy monetary policy, a thaw in global commodity and oil prices, and volatility in stock markets have triggered a rally in the bond market, which in turn has boosted the net asset values of income schemes, say market players.

Following the 40-odd basis points softening in the yield of the benchmark 10-year Government security over the last one month or so, the net asset values of income schemes has gone up, according to Mr K. Ramanathan, Chief Investment Officer, ING Vysya Investment Management.

annualised returns

As a result, investors in income schemes have earned higher annualised returns of 15-20 per cent over a one-month period up to May 21. The annualised returns in the preceding month were in the 6-9 per cent range.

Income schemes of mutual funds typically invest 80-100 per cent of their corpus in debt instruments including the Central Government securities, State Government securities, and debt securities issued by public and private sector companies and up to 20 per cent in money instruments such as treasury bills, certificate of deposits, commercial papers, etc.

long-term G-secs

“The long-term government securities have done well with select securities have moving up by 4-5 per cent since April 16.

The net asset values of some of our duration funds (which invest in long-term G-Secs) have gone up by 4.5-5 per cent in the last month and a half,” said Mr Maneesh Dangi, Head - Fixed Income, Birla Sun Life Mutual Fund

For Birla Sun Life MF, its long term funds, such as income fund and gilt fund, have given a 5 per cent return in the last three months, which works out to an annualised return of 20 per cent.

According to the Association of Mutual Funds of India's data, income schemes of mutual funds saw robust inflows of Rs 1,18,942 crore in April 2010.

The outstanding aggregate corpus in the 345 income schemes as of April-end 2010 was Rs 4,21,063 crore.

These schemes accounted for 39 per cent of the mutual fund industry's total assets under management of Rs 10,87,584 crore.

With the Euro zone crisis casting its long shadow on the stock markets, the Government's coffers swelling on account of good inflows from 3G auction, and reports of possible doubling of the FII investment limit in Government securities coming in, the bond market should be buoyant, said Mr S. Srinivasaraghavan, Vice-President and Head of Treasury, IDBI Gilts Ltd.

This could in turn give a leg up to the returns on the income schemes.

Source: http://www.thehindubusinessline.com/2010/05/24/stories/2010052451920300.htm