Companies, banks and mutual funds are competing against each other to obtain a good share of funds worth Rs. 50,000 which are to be invested across various asset classes. The funds have been generated as a result of high interest rate bank fixed deposits.
In the wake of global meltdown last year, many risk-averse investors had parked large sums of money in term deposits. In order to attract more customers, the banks had started offering interest rates in the range of 10-11 percent. Now, a year later, the banks have again cut down the rates by around 500 basis points from peak levels reached in October 2008.
Vikaas Sachdeva, head-business development, Bharati Axa Investment said, "We're already beginning to see opportunistic investors shifting their investments from banks to mutual funds and other asset classes." He added that while conventional investors would stick to bank FDs, smarter investors would consider investment avenues like short-income funds, treasury advantage funds, fixed maturity plans and also monthly income plans for higher income.
The prevailing bank deposit rates would yield in the range of 5.2-7 percent pre-tax. If the interest rates rise, mutual fund investors would look at short term debt options to invest their money. Money market funds current pre tax rate of interest is 4.5-5.5 percent while that of fixed income funds is 8-10 percent.
Alok Singh, head-fixed income, Fortis Investment Management said, "Investments will not be skewed to any particular asset class this time around. Money will be scattered across assets, with a decent chunk flowing in to fixed income mutual funds and smaller portions in to equities and other asset classes."
Due to market volatility, wealth management experts do not expect a large share of money to flow into stocks and equity schemes of mutual funds.