MFs Witness Long-term Debt Funds Renewed Investor Interest From Oct

Bangalore: Long-term debt funds that have taken a offstage since 2004 due to lower returns are likely to see renewed investor interest from October as fund managers hope interest rates to peak by then. They hope such schemes to give 8-10 per cent annual returns. Many in the fund industry believe India is nearing the end of its interest rate hike cycle, and at the most a quarter basis point rise is likely. May be they are eyeing at one further tightening--at the most, a 25-basis-point hike. Medium and long-term debt funds had seen massive redemption in 2004 amid rising global interest rates, domestic inflation, and a surge in global crude oil prices.

Subsequently, short-term debt schemes such as liquid, floater, and fixed maturity plans had turned attractive for investors. Lotus India Mutual has asked the Securities and Exchange Board of India's clearance to unveil a gilt fund. RBI has raised its repo rate by 150 basis points to 7.75 per cent since Jan 2006, while banks cash reserve ratio has been hiked by 150 basis points to 6.5 per cent since Dec. In its monetary and credit policy for the current financial year to March, RBI had left the key rates repo, reverse repo, bank rate, and cash reserve ratio--unchanged.