After witnessing strong inflows, fixed maturity plans (FMPs) of mutual funds have lost their sheen and one scheme launched by leading fund house ICICI Prudential Mutual fund was withdrawn after failing to generate required interest among investors.
According to top industry executives, inflows have slowed down into these funds amid uncertain economic environment and investors are waiting for more favourable returns in coming months.
Some of the fund managers are of the opinion that FMPs may continue to witness a slowdown till the next quarter due to a relative stability in other market segments such as stocks.
Notably, ICICI Prudential had to return money to investors after its 'FMP series 71 -368 days Plan 1' failed to garner minimum required investor commitments.
Asked about this ICICI Pru's Retail and institutional business Executive Vice President and Head Raghav Iyengar said, "ICICI Prudential manages the highest amount of assets in this category in the industry. This product is very investor-friendly and hence, we make available anywhere between 8-10 offerings every month.
"There have been many launches in this space recently in the industry and since markets have remained volatile, investors have shown less interest in shorter tenure FMPs."
Iyenger further said that "Usually in the last quarter of a financial year, investors prefer to invest in longer tenure FMPs in which they can avail of double indexation benefits and lock in higher yields. Keeping this in mind, we have launched a 480-day scheme.
Asked about weak investor response to FMPs, a top official at another fund house said that the lack of momentum may continue in the last quarter of this fiscal.
"Usually, we see activity in FMPs during the monetary policy announcement by RBI along with advance tax pay outs. As far as subdued interest during recent past is concerned, it is due to less volatility in the market place unlike August- September, when we have seen good inflows," Quantum Mutual Fund CEO Jimmy Patel said.
He also said this trend is likely to continue in the next quarter due to lack of any visible trigger except US Fed tapering.
On the other hand, Reliance Mutual Fund's Head of Fixed Income Amit Tripathi said that investors have not lost interest in FMP products and they will come back as returns are generally better in this segment.
"Mutual fund industry has seen sound demand for FMP products in July-September period due to uncertainty in the macro-economy and good rates offered by these products.
"However, fall in rates in the recent past and expectation of higher rates going ahead are prompting investors to time the market and wait for some more time to invest in the hope of rise in returns," he added.