Investments in Indian mutual funds touched a record high of 8.47 trillion rupees ($141 billion) in the April-June quarter, as investors, expecting interest rate cuts and vary of volatility in equity markets, preferred the safety of debt mutual funds.
Average assets under management, or AUM, in Indian mutual funds rose 3.68 percent, or 300 billion rupees, from the previous quarter, marking the fifth consecutive quarterly gain, data from the Association of Mutual Funds in India, or AMFI, showed.
The rise in AUM was led by heavy inflows into debt funds, as recent volatility in the country's stock markets along with an expectation of easing in interest rates by the Reserve Bank of India in coming months, encouraged investors to choose the relative security of bond funds, a report on Wednesday from Crisil, the India arm of Standard & Poor's, said.
Investments in equity mutual funds fell the most in the June quarter, marking the sixth consecutive quarterly fall, as average AUM slipped 5 percent, or 100 billion rupees, to 1.99 trillion rupees in the quarter-ended June, even though stock markets, buoyed by hopes of a rate cut, rose during the period, the report said.
India’s benchmark index -- BSE Sensex -- has been volatile in the past six months as modest improvements in economic indicators in the past quarter were offset by a hostile investment climate due to stagnancy in reforms, a sharp depreciation in the rupee, and the country's worsening deficit burden.
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The Sensex dropped more than 7.2 percent in less than three months -- from a 52-week high of 20,203.66 on January 29 -- before regaining lost ground to hit a new 52-week high of 20,443.62 on May 20. On June 28, the last trading day of the quarter, the Sensex ended at 19395.81, down more than 5 percent from the May high.
Assets of funds invested in long-term debt and government securities rose in the quarter under consideration, helped by heavy inflows from investors who hoped the central bank, which had cut its benchmark interest rates three times in the current calendar year until May 2013, would cut rates yet again.
“As bond prices and yields move in opposite directions, bond prices rise as interest rates fall and positively impact gilt and long-term debt fund NAVs (returns),” the Crisil report said.
The average AUM of long-term debt funds rose by 265 billion rupees, or 31 percent, during the quarter -- for the eighth consecutive quarter to 1.12 trillion rupees -- marking the highest absolute gain for the category since AMFI started declaring average AUM data in September 2010.
Funds invested only in sovereign debt (gilt funds) too rose for the third straight quarter with assets rising by 8 billion rupees to 86 billion rupees in the quarter, according to the Crisil report.
Funds holding short-term debt also saw a rise in their assets after liquidity improved in the country's banking system in the first quarter of the new fiscal, while volatility in other primary asset classes such as gold also pushed investors toward short-term debt.
AUMs at short-term debt funds rose by 115 billion rupees to 728 billion rupees in the June quarter, compared to a mere 22 billion rupee jump in the previous quarter. Meanwhile, average AUMs at funds in the ultra short-term debt category gained by 56 billion rupees to 1.05 trillion rupees, compared with a fall of 131 billion rupees in the previous quarter.
Average AUM of gold exchange traded funds observed a record fall as investors withdrew their investments in these funds following a sharp fall in gold prices, due to weak demand and a sharp rise in the dollar's value.