VR Logo

Debt Funds' Performance Lags

October was not the best of months for the debt portion of mutual funds

It was a happening month for the debt market. The Reserve Bank of India (RBI) announced some changes in its quarterly monetary review at the end of October, but mainly held onto the key rates.

Bond prices, after falling for the major part of the month, went up partly supported by the RBI's one percentage point hike in the Statutory Liquidity Ratio (SLR). But with most banks already overloaded with SLR securities, it is felt that the impact is unlikely to last long. Banks currently have government securities investment-deposit ratio of close to 33 per cent.

The key takeaway from the policy review was that RBI will withdraw the monetary stimulus measures in an orderly fashion to curb inflationary trends without hurting economic growth.

Inflation continued with its upward trend, rising from 0.83 per cent to 1.51 per cent. With the RBI selling over Rs 30,000 crore of bonds, the 10-year GOI yield ended the month at 7.30 per cent, down from the high of 7.45 per cent, mainly due to purchases seen at the end of the month.

Ultra Short-term

The biggest category so far, among all the funds (equity-debt combined), ended the month with 0.27 per cent return (YTD: 3.88%), which is lower than 0.28 per cent logged in September, 2009. This is the worst performance of the category, caused after the Securities and Exchange Board of India (SEBI) regulation came into effect, that restricted its investment universe to securities with a maturity of 91 days.

Birla Sun Life Cash Plus Sweep was the worst fund in the retail category with just 0.04 per cent return while the best was Fortis Overnight Regular with 0.52 per cent return. While the biggest fund in the retail category, LIC Liquid, turned in the third-highest return at 0.41 per cent.

Floating Rate

Long-Term Floating Rate funds were better off than the Short-Term Floating Rate funds with returns of 0.39 per cent and 0.33 per cent returns respectively. April, 2009 onwards the Long-Term Floating Rate funds are dominating their shorter-term variants.

Liquid Plus & Short-Term

Liquid Plus, a long term variant of liquid funds, gave a return of 0.36 per cent, which is almost equal to the return given by these funds last month. Taking October, 2009 returns into the equation, the tally for this year came up to 4.68 per cent. Short-Term funds fared a bit better than Liquid Plus funds by gaining 0.43 per cent this month (YTD: 5.42%), but they were down by 5 basis points since last September.


The longer-term variant of debt funds that we have, continued providing positive returns with a return of 0.27 per cent. But compared to last month it was down by 28 basis points. The best fund in the category is ICICI Prudential Income Opportunities Retail with a return of 0.99 per cent. Incidentally, for the whole year also this is the best fund with a return of 9.42 per cent. The worst fund of the month in the category was Tata Dynamic Bond A with a negative return of 0.43 per cent. 27 funds out of 56 funds under-performed the category with eight funds in falling into red.

Overall, 2009 hasn't been the year to remember for this category, it is still languishing in the red with a return of -0.05 per cent.


The most volatile of the debt category (Medium & Long Term) had a quiet month, with just a 0.004 per cent return. But the year hasn't been that good for gilt funds, unlike 2008 when they notched up a 25.33% gain, their 2009-till-date returns are in red at -7.84 per cent.

Short-Term gilts gave a return of 0.13 per cent in the month of October, down from 0.32 per cent in September. For the year on the whole, the category has turned in a 0.20 per cent return.


Monthly Income Fund investors were an unhappy lot. Following the broad equity markets, MIPs also ended the month in the red. It broke its 7-month streak of positive returns and gave a negative return of 0.43 per cent. 19 funds out of a 39-fund category under-performed the category, with as many as 26 funds giving a negative return for the month. Though for the year as a whole the category is still in green with a return of 11.77 per cent. The best fund in category was Reliance MIP with a return of 1.19 per cent, beating the second-highest ranked fund by an impressive margin (70 bps).


Except for a small hic-cup at the beginning of the month, gold prices continued their upward momentum. Gold ended the month at Rs 15,970 (per 10 gm) after touching a high of Rs 16,035 near the end of the month. Gold ETFs also maintained their last four months' trend of giving positive returns ending the month with a 2 per cent return, but this was down from 3.18 per cent delivered in September. Overall, for the year, Gold ETFs have given a return of 16.72 per cent.

Retaining Positive Character
    Returns (%)  
FundCategory/Benchmarks  1-Month  1-Year  YTD
Debt: Medium-term 0.28 9.58 -0.05
Debt: Medium-term Institutional 0.30 8.75 -1.66
Debt: Speciality 0.34 7.26 5.13
Gilt: Medium & Long-term 0.00 6.73 -7.84
Debt: Short-term 0.43 10.39 5.42
Debt: Short-term Institutional 0.45 10.27 5.37
Debt: Liquid Plus 0.36 6.29 4.68
Debt: Liquid Plus Inst 0.39 6.63 4.85
Debt: Floating Rate Short-term 0.33 6.13 4.39
Debt: Floating Rate Short-term Inst 0.31 5.68 4.15
Debt: Floating Rate Long-term 0.40 6.94 5.06
Debt: Floating Rate Long-term Inst 0.51 7.56 5.83
Debt: Ultra Short-term 0.27 5.25 3.88
Debt: Ultra Short-term Institutional 0.32 5.97 4.41
Gilt: Short-term 0.13 4.57 0.20
NSE G-Sec Composite Index  0.04  7.19  -5.11
NSE MIBOR  0.28  4.25  3.05
NSE Treasury Bill Index  0.32  6.02  5.19
VR Bond  0.18  5.82  -0.19
Hybrid: Monthly Income -0.43 18.09 11.77
VR MIP  1.05  17.42  11.31
Gold ETF 2.00 30.80 16.72
Returns as on 31st October, 2009