Aditya Birla Sun Life AMC Limited

#GoBeyondFixed - A Writing on the Wall

#GoBeyondFixed - A Writing on the Wall

Aug 07, 2018
5 mins | Views 5179

The Indian Mutual Fund industry has had a phenomenal run in recent years, more specifically, the last year. The general awareness levels have also witnessed significant improvement ever since the Mutual Fund Sahi Hai campaign was run by the industry body AMFI which fortuitously coincided with one of the best years for the equity markets.

“SIP” found its way into everyday household conversations and is now synonymous with long term investing for one’s goals. As a result, investors from beyond the Top 15 cities nearly matched the investments of those from the Top 15, making SEBI’s focused efforts, in this direction, successful. This has encouraged SEBI to further the cause of MF penetration in the country and they have now advised to redefine the focus beyond the Top 30 cities.

Notwithstanding these positive developments, there are many more underutilized opportunities for investors to consider which can help them reach their chosen financial goals. Indian banks have a massive deposit base of Rs.109,000 bn out of which 60% is invested in term deposits or fixed deposits & 32% lies in savings bank accounts.

The irony of the situation is that these monies that represent the household savings of one of the fastest growing and large economies in the world are deployed inefficiently in financial assets like FDs and Savings Bank Account. The ROI on these Bank FDs for 1-3 years are currently ranging 6.75 – 7.25% p.a. and savings bank account rate is at 4% p.a. This base continues to grow while an alternate product like MFs etc. in the same duration bands or similar credits are having the potential to generate comparatively higher YTMs.

Largely this anomaly exists due to

  • Lack of awareness
  • Inefficiency or non – optimal investment of one’s own money and
  • Fear of Unknown (search for perceived safety)>

This presents an imminent opportunity as fixed Income mutual fund schemes have historically offered a higher alpha across tenors. Yet, the banking system get flusher with more money for it’s ‘safety, liquidity and predictability’ around returns, especially more so post demonetization. What is surprising is that in Savings Accounts that offer a merely 3.5 – 4% p.a. one would imagine maximum parking of 1-3 months but the observed behaviour of the average aging of funds in savings bank accounts is over 6 months on an average. We believe that there should be creation of awareness and understanding amongst these saving pools of the FD and savings account holders.

The key message is that the same investment horizon has the potential for higher returns and can be achieved with money market linked risk and same or sometimes higher level of liquidity. Being one of the leading fund houses in the country, we bear upon ourselves the onus to enlighten investors on the availability of various other investment options in the market.

The investment landscape in the country has been gradually changing in the last few years. It is our opportunity now to #GoBeyondFixed and adopt this change to take our goals to the next level with a smart choice of investing in these debt funds after analyzing the risk reward trade-off.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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