Uma Shashikant on Tue, Jan 11th, 2011 7:17:21 am
FMPs also are subject to valuation norms, but there will be no MTM impact to the inevstor who holds the FMP until maturity. CPs and CDs are also now subject to valuation.
Srini on Sat, Jan 8th, 2011 10:16:10 pm
1. Do FMP's too get the effect of MTM reflected in their NAV's? As their portfolio normally contain CP's, CD's
Uma Shashikant on Sat, Jan 8th, 2011 8:30:54 pm
The long end of the curve is likely to continue to remain under pressure, for all the reasons listed by Sumit. My sense is that heightened government borrowing may become the norm, keeping long term yields higher. My focus is on the opportunity provided by the inverted curve at the short end. Deposit and CP pricing now hold a liquidity premium, which is larger than normally seen. With government spending coming in, this situation could ease, perhaps in the first two quarters of the next fiscal. An FMP would have locked the current rates, and remain untouched. A smart short term fund, which hopefully does not get bulk flows as the rates ease, can make a smart gain if the liquidity premium wears off, and the curve normalises at the short end. The problem as pointed out by Suresh and Rupesh, is that investors may come in after the gains are visible, forcing the fund manager's hand to invest in lower accrual products after the curve has normalised. The call to take now is whether a mark to market gain will add to higher accruals, and whether the inverted short end of the curve will normalise. A smart short term fund will capitalise on this possibility.
Sumit on Sat, Jan 8th, 2011 10:36:11 am
I, to a certain extent, agree with the fact that the sustainability of persistently high short term rates is unlikely, and hence short term debt funds may be more beneficial as compared to the FMPs from an investor's perspective.
However, my concerns are as under:
1) Next year's borrowing calendar, which may be front-ended in the first half of the FY is expected to suck out liquidity and may result in the rates continue to be at elevated levels.
2) With the credit growth likely to pick up as against sluggish deposit growth, it may put upside pressure on the yields.
3) With the govt spending on Infrastructure projects to increase and the sources to raise funds are limited, it may likely put burden on govt to borrow more and hence may prevent the yields from softening.
Your comments pls..
Rupesh on Thu, Jan 6th, 2011 12:23:28 pm
I am little new on this. Would like to know , just to confirm what i understood is Short term debt fund will be better than FMp's in this market ?
K R Suresh on Thu, Jan 6th, 2011 9:32:13 am
Investors many time judge the situation and consequences wrongly. After many years of study and experiencing many situation why the investor get it wrong?