Product launches by mutual funds (MFs) have entered the slow lane this financial year (2023-24), with debt fund launches grinding to a halt after the loss of indexation benefit, noted a report by Business Standard.
As per the report, the industry launched 253 new schemes in 2022-23 (FY23), with a majority of offerings being on the fixed-income side. So far this financial year, the total number of launches has stood at 24, with just three of them being on the debt side, it informed.
According to MF experts, they are tracking the demand situation before coming out with any new debt offering, the report said.
“The demand, in general, has come down owing to a loss in indexation benefit, both from individual investors and corporates. We will look to launch products if the demand situation improves,” a senior MF executive told BS.
In FY23, the report pointed out, that target maturity funds (TMFs) had emerged as the leading category for launches as fund houses set out to create a bouquet of offerings in the TMF space, which was fast gaining traction among corporate and retail investors.
There was optimism among fund houses that TMFs may emerge as a strong alternative to bank fixed deposits (FDs) that have historically received the lion’s share of household savings, it stated, adding that a total of 65 TMFs launched in FY23, with fund houses coming up with differentiated products with better risk/reward propositions to maximise yields, and also make their product stand out in a sea of offerings.
TMFs are passively managed debt funds with a specific date of maturity, offering predictable returns if the investor remains invested until the date of maturity. Most schemes specifically invest in government securities and state government bonds.
However, with the change in taxation from this financial year, the industry has been forced to stall its TMF plans, stated BS.
“The attractiveness of debt funds has come down for sure. We are still recommending medium-to-longer horizon debt schemes but mostly to people in lower tax brackets. Products like TMFs still make sense for certain sections of investors like those who want to lock in money for longer durations in expectation of capital gains,” Vinod Jain, founder, Jain Investment Advisors, was quoted as saying.