Focus on fixed income funds

Mutual fund investors have turned to low-risk fixed income funds to beat the crippling effects that the market meltdown has had on pure and diversified equity-oriented funds. The total assets under management (AUM) of the mutual fund industry grew by about Rs 14,800 crore during February just when gale force winds were blowing through global stock markets. Fixed income funds accounted for 80 per cent of this growth. A fixed income fund is a mutual fund that invests in government and corporate bonds, certificates of deposits, and other fixed income investments. Fixed income funds are suitable for those investors who are uncomfortable with fluctuating incomes that market-linked instruments fetch.

The AUM for the mutual fund industry surged about 3 per cent to Rs 5,62,000 crore from Rs 5,48,000 crore in February despite a net fall of about 3.6 per cent in the equity market in the same period. The appetite for equity funds, however, shrank and the investors preferred to park money in low-risk, low-return schemes such as medium and long-term fixed income funds. New fund offers from fixed income schemes in February raked in money with the industry reporting negative returns.

Assets of fixed income funds swelled by around Rs 12,000 crore to Rs 3,40,000 crore in February. Most of the investments were seen flowing into medium and long term debt funds, which gave debt funds a weightage of over 60 per cent of the overall AUM in February as against 49.75 per cent in January. On the other hand, the share of equity-oriented funds shrank to 40 per cent in February from 50.25 per cent in January.