Morgan Stanley Mutual Fund is sticking to the launch of its first ultra short-duration debt fund in India, the lead fund manager said on Thursday, at a time when the sector is facing a rise in redemptions following a surge in short-term yields.
The Reserve Bank of India's unexpected measures on Monday to raise short-term borrowing costs and restrict funds available to banks to protect the rupee have dented debt markets.
The surge in rates has raised the prospect of investors cashing out, leading the RBI on Wednesday to announce it would provide asset managers up to 250 billion rupees ($4.23 billion) in special funding to meet any redemption requests.
That was the first time RBI has had to provide contingency short-term funding to asset managers since the 2008 financial crisis.
"When the plan to launch this product was conceptualised the move with respect to the shorter end curve was obviously not anticipated," Ritesh Jain, Morgan Stanley Mutual Fund's head of Fixed Income, said on Thursday.
However, he said he expects the ultra short-term debt fund to attract investments over the long-term. He declined to discuss how much in assets Morgan Stanley Mutual Fund was aiming to raise.
Ultra short-term debt funds in India have longer average maturities than typical liquid and money market funds, giving them the flexibility to invest in debt securities with residual maturity of up to one year.
"We do expect some investors to hold back for the time being due to liquidity concerns, but the higher rates in the shorter term yield is much more beneficial in the context of portfolio buildup," said Jain, who is also the lead portfolio manager of the fund.