Zurich India AMC has introduced a convenient way to redeem investment in two of its debt funds - Zurich India High Interest and Sovereign Gilt funds. Branded as "ZuriCheque", they are redemption cheques of various denominations issued to the first applicant, at the time of investment. In the event of redemption, an investor just has to put the date on the cheque for collection. The cheques are drawn on Citibank, and an investor can redeem a maximum of Rs 2 lakh or 75% of the invested money, whichever is less. The AMC receives the details of transaction from the bank and adjusts the number of units to the extent of the redemption on that day's NAV. The facility has been made available to existing investors as well. This way to redeem units is particularly convenient for small investors which reduces redemption time by at least three days.
In a highly turbulent phase for the equity markets, the bond market rally has prevailed for a while now. And the medium-term bond and gilt funds are through perhaps one of the best periods in recent times. The falling interest rates and a slowing economy is helping a number of funds in this category to post handsome gains, and the category has delivered impressive returns in 2001. The average medium-term debt fund is up 6.91 per cent in 2001.
The sizzling return and new money pouring into these funds has bloated the fund assets in this category by Rs. 3600 crores within 2 months. Besides these sweet returns there are other factors too driving huge flows into these funds - the disappointment with equities, the ban on badla and the interest rate cut has only added to their relative attractiveness.
But these return in recent times are clearly not sustainable, as it's driven by special situations, negatively impacting the long-term return from these funds. First and foremost, the series of and likely interest rate cut has boosted the bond prices, hence the debt funds have gained in value. But the new money pouring into funds will yield lower return as price of bond realign to the prevailing interest rates. The bond rally might prevail for a while boosting returns in near-term. But realistically, over a longer time frame, these bond funds will only deliver marginally superior returns than alternative fixed income options; ofcourse with higher tax efficiency and liquidity. In view of this, the right strategy will be to carefully look beyond recent performance and choose a mid-sized well balanced (meaning gilt and quality bond portfolio with medium maturity) for steady fixed income.
For the week ending June 08, 2001, the markets lost 62 points (-1.74%) on the Sensex and 28 points (-1.62%) on BSE National Index. The top gainers were - ING Growth Portfolio (0.94%), Chola Freedom Technology (0.77%). And the biggest losers Libra Taxshield '96 (-6.55%), Magnum Taxgain (-4.8%) and Magnum Pharma (-4.7%).