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Debt funds lose Rs.1700 cr

Bond Funds have lost close to Rs 1700 crore in March due to year-end redemption pressure

Bond funds have seen assets under management shrink by nearly Rs 1700 crore in March with total corpus dropping by 12 per cent to Rs 12,300 crore. In fact, redemption would have been higher but is not reflected due to a steady rise in net asset value, which marginally sets off the impact of the outflow. The month traditionally sees redemption from corporate investors on account year-end consideration. While some big-ticket investors want to beef up the balance sheet, some others do not want to reveal these investments.

"This year, debt funds also attracted some short-term investments since the going was expected to be good with most AMCs waiving off loads. That money has also moved out (from funds),'' says an official with a mutual fund. The first quarter of the current calendar has been buoyant for bond funds, which posted an average return of 4.23% (annualised return of 16.92%) on the back of three successive rate cuts including reduction on assured returns on small saving instruments.

Among the worst hit due to redemption is Escorts Income Bond, which has seen its corpus shrink by a massive 56% to Rs 16 crore on March 31, 2001. Some of the bigger debt funds like Alliance Liquid Income and Magnum Bond have also lost over 15% of their asset base, with an outflow of Rs 270 crore and Rs 125 crore, respectively. On the other hand, there are just three funds, which have seen a net inflow.

However, unlike 2000, when bond funds had resorted to panic selling to meet redemption, most funds held a reasonable cash exposure in anticipation of repurchases. For instance, DSPML Bond held an average 15% in cash during the month with a redemption of Rs 120 crore or roughly 12% of its asset base of Rs 989 crore in February. In fact, last month saw a net purchase of Rs 375 crore from funds in the bond markets against a net sale of Rs 250 crore in March 2000.

While money has moved out from bond funds, asset management companies are not perturbed since most of the outflows will come back in the new financial year. With equity markets in doldrums, AMCs plan to aggressively sell bond funds this year, backed by budget sops like a lower dividend tax and reduction in section 80L limit to Rs 9,000.

Year-End Pressure!
  Fund  February '01  March '01
  Escorts Income Plan 38.00 16.58
  Dundee Bond PSU 4.85 2.94
  IL&FS Bond 106.27 76.02
  ING Income Portfolio 263.73 198.28
  Alliance Liquid Income 1178.50 907.77
  Magnum LIF 748.00 622.14
  Reliance Income 257.59 216.31
  K Bond Deposit 223.16 191.14
  KP Income Builder 584.19 504.21
  Sun F&C Money Value Bond 230.05 198.82