Fixed Maturity Plans Preferred Against Gold Mutual Funds
As I said in my previous blog that one should avoid too much gold investment, according to Association of Mutual Funds of India (AMFI) craze of gold mutual funds is going down & fixed maturity plans are back in favor. Due to current market uncertainty, investors are not showing interest in equity funds. Liquid funds have started getting back inflows that had paused for some time.
According to the report, investors have withdrew Rs594 crore out of gold ETF in the month of August which is highest amount of money ever withdrawn from gold ETFs. And only Rs 6 crore were invested, which is lowest since March 2009.
People were getting gain in gold mutual funds because rupee was depreciating but as now rupee starts recovering, gold prices will also go down.
Due to hike in interest rates FMPs have been able to find high-yielding debt scrips in the market to invest in. Money locked in at such high yields results in FMPs giving high returns.
EXAMPLE: a three-month commercial paper was available at a rate of 11.0625% on 6 September, up from 8.45% on 31 May.Yields on commercial paper and certificate of deposits across tenors have risen in the past two months on the back of liquidity tightening measures taken by the Reserve Bank of India.
Whenever interest rates moves to double digits level, investors always rush to buy FMPs.
All the money invested in FMPs is not fresh money, it also includes money invested by institutional investors who had earlier parked their money in ultra short-term funds.