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Lured by Handsome Gains, Fearful Investors Flee to Bond Funds

Backed by strong performance this year, fixed income fund assets surged dramatically -- 66% net rise in assets base (growth in asset value and new money raised) in the past four months

Backed by strong performance this year, fixed income fund assets surged dramatically -- 66% net rise in assets base (growth in asset value and new money raised) in the past four months. The asset base of the open-end fixed income grew to Rs. 31,851 crore on July '01 from Rs. 19,110 crore on March 31, 2001, an addition of Rs. 12,741 crore.

Medium-term Debt led the way with net gain of Rs. 6825 crore, followed by Cash funds with Rs. 4701 crore (128% rise) and Gilt-Medium & Long-term with Rs. 1987 crore. The only category of fund to witness reduced asset base was the open-end MIP's (Debt with Marginal Equities) losing Rs. 75 crore. The Specialty Debt Funds (fixed maturity plans and serial plans) together added Rs 500 crore to the asset base. As on March 31, 2001 Specialty Debt Funds had Rs 195 crore under management.

Equity market volatility typically results in increased flows for fixed income products. Add a declining interest rate environment and the sales picture for bond funds is even brighter. Thus, it is no surprise that all fixed income fund categories experienced substantial rise in their asset base. The substantial rise in cash fund assets was largely on account of Badla money finding its way into cash funds. Investor's total apathy to do anything with equity was visible in the open-end shrinking base of open-end MIPs.

In the medium-term debt fund category, the top asset gainer was Grindlays Super Saver Income Fund addin Rs 1045 crore, HDFC Income (Rs 897 crore) and Pioneer ITI Income Builder (Rs. 802 crore). These three funds together accounted for 40% of the rise in asset base. On the contrary, Sun F&C Money Value Bond Fund has reduced by Rs 50 crore.

Among the cash funds, HDFC's Liquid Fund share was 22% of new asset gathered. The HDFC Bank connection helped. This was followed Birla Cash Plus and Prudential-ICICI's Liquid Plan. Among the MIPs, Alliance MIP lost Rs 118 crore of its assets.

Investors consider Equity funds to be the stars in the fund world, while Fixed Income ones are the stodgy, plodding, old veterans. Returns are largely accepted to be lower than equity, generally in the single-digit realm. After experiencing the volatile equity market, the appeal of the bond fund has grown significantly.

Balooning Assets - Asset Under Management (Rs Cr)
  Category  31-Jul-01  31-Mar-01  Chg. (Cr)  % Chg
  Debt: Medium & Long-term 19346.51 12521.56 6824.95 54.51
  Debt: Short-term 8386.36 3684.88 4701.48 127.59
  Gilt-Medium & Long-term 1987.10 1307.56 679.54 51.97
  Debt: Speciality 700.49 195.41 505.08 258.47
  Gilt-Short-term 398.88 229.45 169.43 73.84
  Money Market Funds 5.69 70.25 -64.56 -91.90
  Debt with Marginal Equity  1026.13 1101.11 -74.98 -6.81
  Total 31851.16 19110.21 12740.95 66.67