Fixed Deposits emerging stronger than long-duration debt mutual funds schemes: Report

financialexpress.com:

Fixed Deposit vs Debt Fund: Bank Fixed Deposit is emerging to be a stronger product than longer-duration debt mutual fund schemes, according to the recent Mutual Funds Report by Motilal Oswal Financial Services.

Fixed deposits are becoming popular on the back of interest rate hikes and the removal of tax advantages previously enjoyed by long-duration debt funds. However, according to the report, the demand for short-duration debt funds remains strong.

“On the debt side, the momentum remains weak as large institutional investors are waiting on the sidelines given the geopolitical tensions across the world. FD is emerging to be a stronger product vs. longer-duration MF schemes. However, demand remains strong for the shorter duration (< 1 year) schemes,” the report said.

The 10-year bond yield in India has moved up to 7.35% from ~7.0% in May 2023. Given the geopolitical tensions, large institutions are expecting further hardening of yields which is keeping them on the sidelines, according to the report.

Further, FDs (6M to 3Y) are in demand among large institutions as against these, the Line of Credit is also available, which makes it an attractive proposition.

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“Some demand is arising for floating rate funds but this is a much smaller category in the overall debt segment. Debt index funds, which had witnessed strong momentum over the past few quarters, have also seen a reduction in inflows,” the report said.

The report says there has been a significant increase in product launches on the passive side. However, retail segment investments via distributors are not moving towards these products.

“HNI investors are incrementally using the passive route, especially through the