Shailesh Menon, ET Bureau
MUMBAI: Asset management companies are fast learning the art of negotiating in
choppy market conditions. In their bid to retain investments, fund
houses are increasing exit load or timeframe (up to which exit load is
applicable) to stop investors from redeeming their debt fund portfolios.
The move to hike exit load comes in the wake of fund houses facing huge
redemption pressure in fixed maturity plans (FMPs) during October. According to
the Association of Mutual Funds in India (AMFI), the average asset under
management of FMPs stood at Rs 127,000 crore in November, shedding around Rs
11,000 crore over the previous month. Fund managers were driven to sell debt
securities before maturity and at discounted prices to meet investors' claims
then.
According to industry sources, exit loads are set to regulate the flow of hot
money (speculative investment) into schemes. "Hot money doesn't come in small
lots; it usually flows in the range of Rs 1-5 crore. By putting exit load at
the threshold level, fund houses are actually barring retail investors from
participating in such funds.
And if a retail investor redeems his investment, the exit load compensates for
the upfront commission paid by the AMC," said a fixed income fund manager.
Almost all fund houses have set load structures in the range of 0.15% and 2% on
the redeemable portion.
A few fund houses such as Fortis Mutual Fund have altered the timeframe on the
exit load. For instance, in Fortis Money Plus Plan, there is a 0.15% exit load
on investments if investments are redeemed within seven days (earlier 15 days).
"Fund houses are trying to pre-empt such a situation in income funds now. Fund
managers do not like rapid redemptions as it will put them in a difficult spot
of selling debt securities in a rather illiquid market and at lower prices,"
said Crisil Fund Services head Krishnan Sitaraman.
"Long-term investors in debt schemes are impacted (net asset value erosion) by
rapid redemption; higher exit load will deter speculative investors from
participating in the fund, thereby protecting the interests of genuine
investors," Mr Sitaraman added.
AMCs are striving hard to attract investors by reducing minimum application
money as well. Edelweiss MF has reduced minimum application money for their
interval fund (institutional plan) from Rs 1 crore to Rs 10 lakh. Fund houses
resort to altering minimum application money to control costs. AMCs raise the
threshold level when it desires to reduce costs (by accepting more investments
from lesser number of people) and does the opposite (reduce ticket size) to
attract more retail investors.
Debt funds invest in corporate debentures, bonds and other including
securitised debt instruments of varying maturity periods. The continuous rally
in bond market - thanks to rate cut expectations - has resulted in investors
flocking to park their money in income funds.
"Bond yields have fallen over the past two days as a result of year-end profit
booking by traders and investors. Though, there is exit load, fund houses are
likely to experience some redemption pressure in the coming days," a debt fund
manager said.
http://economictimes.indiatimes.com/Market_Analysis/Fund_houses_hike_exit_load_on_debt_funds/articleshow/3882948.cms
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