Exotic structured products, which adorned the portfolios of rich investors till about a year ago, are slowly being replaced by high-yielding debt funds and fixed maturity plans (FMPs). Higher fixed income yields, range-bound equities market and aversion to complex investment products are prompting HNIs to avoid structured products and invest in simple debt funds, wealth managers and product manufacturers said.
Apart from simple 'yield-plus-Nifty participation' type of products, none of the complex structures are being sold by wealth managers in significant numbers. These are structures designed to provide capital protection; nearly 75-80% of the corpus is held till maturity in bonds while the remaining portion is actively invested in a Nifty stock basket. The final payout is based on the return of the underlying equity.
"Investors, who are willing to take risk, are only investing in capital protected schemes, which is your regular yield-cum-Nifty participation product. Otherwise, money is chasing fixed income products now," said Shariq Hooda, head of third party products at Religare Securities.
FMPs and high-yielding non-convertible debentures are seeing more inflows than complex structured products, Mr Hooda said. It is range-bound equities market that is making investors allocate more to debt funds. With short-term rates hovering at 9-9.75%, investors are looking to lock-in money at higher rates in FMPs and long-bond funds (8-10 years' tenure) - both of which are yielding near - 10% returns. FMPs - both short-tenured and longer duration portfolios - are a big draw among affluent investors. Average asset under management in FMPs have surged 38% from 87,033 crore in December 2010 to 1,20,662 crore in June 2011, according to Value Research data. Structured products, which compete with FMPs in terms of returns and a certain level of safety, are not finding enough takers, product manufacturers said.
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