Fixed maturity plans (FMPs) of mutual funds have witnessed net outflows of Rs 17,644 crore in April amid the overall nervousness in the debt markets owing to credit events, rating downgrades and defaults by corporates. Total corpus of FMPs declined to Rs 141,170 crore as of April 2019, according to monthly data released by the Association of Mutual Funds in India (AMFI).
Some mutual funds which had lent to Zee group entities have decided to hold back payments due to investors in their fixed maturity plans. As a result, several FMPs which are due for maturity were not able to repay the entire amount in the wake of the delay in recovery from the Zee group. The rating downgrade of Reliance Home Finance and Reliance Commercial Finance also created nervousness among mutual funds which have an exposure of Rs 2,600 crore in the two companies.
FMPs are closed-ended debt funds with a maturity period that can range from one month to five years on the lines of bank fixed deposits. FMPs usually invest in certificates of deposits, commercial papers, money market instruments and non-convertible debentures for a particular tenure.
However, overall inflows of mutual funds rose by Rs 100,459 crore in April, aided by Rs 89,778 crore inflows into liquid schemes. The average assets under management (AUM) of mutual funds rose to Rs 25.27 lakh crore.
Investors wary; regulators look to tighten norms
Several instances of rating downgrades by credit rating agencies and defaults by corporates over the last six weeks sent shockwaves among investors of FMPs, which is considered a relatively safe investment instrument. If exposure of debt papers of IL&FS was one big concern among investors, reports of MFs exposure to Zee Group companies, Reliance Capital and Hazaribagh Ranchi Expressway raised fresh concerns. The issue is also learnt to have worried the regulators and sources confirmed that the Securities and Exchange Board of India is looking at revisiting regulations relating to mutual funds to safeguard investor interests.
Mutual fund investors, however, continued to show their confidence in investing in mutual funds through systematic investment plan. SIP inflows for the month stood at Rs 8,238 crore, a month-on-month growth of 2.3 per cent. SIP inflows during April 2018 were Rs 6,990 crore.
Meanwhile, equity schemes saw inflows of Rs 4,608 crore in the month of April amid volatility in the market due to the spike in crude oil prices. Total AUM of equity schemes rose to Rs 703,549 crore, AMFI data shows. This is one of the lowest monthly equity inflows in the recent months despite inflows of Rs 8,238 crore through SIPs.
NS Venkatesh, CEO, AMFI said: Steady growth in equity SIPs, continued net inflows into equity schemes and overall average AUMs crossing Rs 25 lakh crore driven by inflows into liquid funds in April 2019 is reflective of the overall retail and institutional investor confidence in the India growth story.
Explaining net outflows and subdued response to FMPs and credit risk fund category, Venkatesh said: Overall nervousness in the markets owing to credit events, rating downgrades and defaults, coupled with global trade imbalance and uncertainty over outcome of general elections has led to investors getting into wait-n-watch mode. We expect investors would return in a big way, as corporate earnings improve further and once the general elections related uncertainty and global headwinds recede over the next few months.
Hybrid schemes witnessed outflows of Rs 1,614 crore in April. However, ultra short duration funds registered Rs 11,000 crore inflows in the month.