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Big opportunity that most MFDs are not focusing onSaugata Chatterjee, Nippon India MF, Mumbai

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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.


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Comments Posted
Sandeep Gandhi ARN NO :8180 Rajkot, 04 Nov 2024

Thanks for drawing attention to debt segment. But it is very tough for the MFDs to understand the intricacies of this segment. Further, flow of information is very limited in fixed income when compared to equity segment. Still I agree there is big room to build the AUM. One very interesting point is that once the investor is convinced then the ticket size is much bigger than equity segment.

DEBRAJ SENGUPTA ARN NO :ARN-38509 KOLKATA, 04 Nov 2024

What Mr Chatterjee shared is absolutely correct however the fact remains and Retail and MNI client prefer Equity over Debt funds at this juncture . They want stability and assurance when it comes to fixed income investments. As regards Mutual Fund investments are concerned they are having Debt allocations via Hybrid funds like Balanced Advantage or Multi-Asset funds. Pure Debt funds except Long term gilt fund in recent time has not delivered setllar returns making Bank FD, Post Office schemes looking vulnerable. Even people hesitate to put into Liquid or ultra short when they invest for Emergency goals. After investing for a few month they ran out of patience and start making their own login behind investing in Equities, refuting all possible risk of downside chances.

S K PODDAR ARN NO :ARN: 68409 KOLKATA, 03 Nov 2024

I have stopped juggling. Multi Asset Funds are the best investment option for the retail investors. About 20% of the underlying securities belong to Debt category. Double digit returns are good enough to beat the inflation, taxes and meet any future financial goal in the long run. EVERY INVESTOR MUST HAVE IT.

Sunil S Bhagat ARN NO :9646 Pondicherry, 03 Nov 2024

Thks Saugata ji for highlighting that mutual funds are not only equity based funds but also corporate bonds , short term funds etc. My past experience with debt funds has not been very great considering that in a falling interest rates scenario they can generate better returns and indexation was a great puller. Also 2019 scenario where there were defaults in debt fund papers and franklin winding up was a great eye opener and brought out the negative sides of debt fund investing. However we should look at allocating funds now as the debt situation is much better today and interest rates seem to have somewhat peaked....If investors get a good experience then that should be good for us.

MAHESH RAIKWAR ARN NO :26184 Sagar, 03 Nov 2024

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