Indian mutual fund investors have been losing money in income funds. This is because in the past four months (between May 1, 2004, and August 31, 2004) income funds have posted a value erosion of close to Rs 3,300 crore (Rs 33 billion).

The erosion is directly attributable to the decline in the prices of government securities.

The I-bex, the benchmark index for government securities created by ICICI Securities, has slipped 5.56 per cent during the period, while the market value of top traded government securities has declined by almost eight per cent.

The value erosion has been computed taking into consideration the monthly data on inflows, outflows and assets under management of the mutual fund industry in the last four months.

The data sourced from the Association of Mutual Funds in India show that income funds had net outflows of Rs 11,172 crore (Rs 111.72 billion), while assets under income funds declined by Rs 14,286 crore (Rs 142.86 billion).

The gap between outflows and assets under income funds reflects the value depreciation.

However, sales and repurchases data for the last four months show that most investors have cut losses by redeeming their investments in income funds. As against sales of Rs 42,925 crore (Rs 429.25 billion), the redemption in income funds was higher at Rs 54,097 crore (Rs 540.97 billion), translating into net outflows of Rs 11,172 crore.

The debt assets of income funds declined by Rs 14,286 crore from Rs 68,308 crore (Rs 683.08 billion) on April 30, 2004, to Rs 54,022 crore (Rs 540.22 billion) on August 31, 2004.

The redemption pressure on account of a fall in net asset value saw the corpus of large income fund schemes declining between Rs 500-1,500 crore (Rs 5-15 billion).

HDFC Mutual Fund saw heavy redemption pressure in its income funds, with the size of the fund down by Rs 1,484 crore (Rs 14.84 billion) to Rs 1,271 crore (Rs 12.71 billion) on August 31 from Rs 2,755 crore (Rs 27.55 billion) on April 31.

The net asset value (NAV) of HDFC Income Fund declined by 2.48 per cent. The size of Prudential ICICI Income Fund decreased by Rs 1,074 crore (Rs 10.74 billion) in the four months to Rs 987 crore (Rs 9.87 billion). The NAV of its income fund declined 2.26 per cent.

The income schemes, which posted major outflows and value depreciation, were Reliance Income fund (income fund size down Rs 941 crore (Rs 9.41 billion) and NAV down 1.59 per cent), Birla Income Plus (Rs 908 crore -- Rs 9.08 billion or 2.68 per cent), Grindlays Income Fund (Rs 902 crore -- Rs 9.02 billion, or 2.37 per cent) and Templeton India Income Fund (Rs 649 crore -- Rs 6.49 billion, or 2.39 per cent).

While income funds were facing erosion on the back of a decline in value of government securities, the equity funds have recorded a smart recovery in the past three months.

The equity funds came out of the loses in May when the market value of equity holdings declined by Rs 4,656 crore (Rs 46.56 billion) with a small recovery of Rs 4,294 crore (Rs 42.94 billion).

The market value of the pure equity funds recovered by Rs 3,932 crore (Rs 39.32 billion) in the three months, while balanced funds posted a value appreciation of Rs 362 crore (Rs 3.62 billion).