The value of assets managed by mutual funds in the income category more than doubled to Rs 33,563 crore in the December quarter on increased inflows from wealthy individuals and hopes of interest rate cuts, according to a report by credit rating agency Crisil.
The steep rise in the Assets Under Management (AUM) compared to three months ended September 2012 is also the highest for any quarter in two years.
Income funds invest only in debt instruments issued by government, public or private companies.
The mutual funds collect money from investors and later invest the same in various market segments including stocks, IPOs (primary market) and bonds.
"The quarterly average AUM of income funds...rose by 111 per cent, quarter-on-quarter, to Rs 33,563 crore. This is the highest AUM gain in the category over the past eight quarters, the report said.
The rise in AUM by Rs 17,702 crore was mainly due to inflows from high networth individuals (HNIs) and corporates in anticipation of a reduction in interest rates by the Reserve Bank of India (RBI) in its monetary policy on January 29.
Further, income funds have also increased their average maturity from 5.49 years to 8.40 years, the highest in the past three years, as portfolios with higher maturity would earn superior returns in falling interest rate scenario.
Additionally, the exposure to government securities has increased while the allocation to certificates of deposits and commercial papers has reduced.
"Allocation to government securities increased 46 per cent in December vis-a-vis 24 per cent in September 2012. The category also delivered 2.39 per cent absolute returns over the quarter," the report noted.
The report said across categories, small and mid-cap equity funds were the top performers in the quarter delivering a return of 8.06 per cent.
Overall, mutual funds industry's AUM stood at Rs 7.86 lakh crore at the end of December quarter, up from Rs 7.47 lakh crore in the previous three-month period.