Distributors have taken their eyes off debt funds ever since the tax arbitrage opportunity went away – that’s a big mistake says Saugata for two reasons:
1. Your investors continue to put huge amounts of their savings into debt instruments –FY24 net sales of debt funds was around Rs.9700 cr, compared to Rs.25 lakh cr of net sales into bank deposits
2. Debt funds give comparable pre and post tax returns to FDs, but with much more flexibility on 2 important counts – liquidity and tax deferment. The ability to defer tax is a big advantage for HNIs who are always tax-sensitive.
An SWP on debt funds gives investors regular cash flow and tax deferment – a combination that Saugata says needs to be promoted a lot more by the industry as well as by distributors.
AMFI data shows that HNI folios (which start from as low as Rs. 2 lakhs) have 18% of their assets in debt and liquid funds and comprise a third of overall industry AuM.
The top 100 MFDs have 28% of their assets in debt and liquid funds and this percentage goes all the way down to only 8% for MFDs beyond the top 1000. Clearly, there is a huge opportunity that mid sized and smaller MFDs are missing compared to their top 100 counterparts, as every MFD surely has investors who invest more than Rs. 2 lakh per folio.
If you really want to take a crack at the massive bank FD market, Nippon India MF has done all the hard work for you of breaking down deposits across India down to every district level. Contact your NIMF RM to access data for your location and get a clearer understanding of the size ofthe opportunity available to you.
Saugata says short term funds and corporate bond funds ought to be the go-to retail debt offerings that MFDs should focus on. Corporate bond funds are very relatable to investors who invest in company and bank FDs – these funds invest in best of breed companies’ debt instruments and don’t have the kind of duration that can create sizeable volatility in returns.