Monday, December 10, 2012

December 2012

Debt mutual funds are in a way considered suitable for retail investors, who with a small investment amount want to diversify their portfolio and benefit from various highly rated and high-yielding debt instruments. In the last one year, when benchmark indices have given a negative return of 15%, long-term bond funds have given an average of 4%, with many funds even giving returns in the range of 6% to 8%. A bond fund’s total return measures its overall gain or loss over a specific period of time. The total return includes income generated by the underlying bonds and (both realized and unrealized) price gains or losses.

All the five GEMs in the December 2011 GEMGAZE have retained their pre-eminent position in the December 2012 GEMGAZE too.

ICICI Prudential Gilt Investment Fund  Gem

Launched in August 1999, ICICI Prudential Gilt Investment Fund sports an AUM of Rs 239 crore. Being a gilt fund, the credit quality of the portfolio is very high with Government of India securities constituting 91.27% of the total assets. There are seven holdings in all with an average maturity of 10.72 years. The fund earned a return of 10.98% in the past one year as against the category average of 10.26%. The expense ratio is 1.5%. The fund is benchmarked against the I-SEC Li-BEX index. The fund is managed by Mr. Rahul Goswami.

Canara Robeco Income Fund Gem

Canara Robeco Income Fund was launched nearly a decade ago in 2002. The current AUM of the fund is Rs 203 crore with 17 holdings. Being an income fund, debentures constitute 44.56% of the total assets, with reverse repo and Government of India securities constituting 31% each. The credit quality of the fund is reasonably high. The interest rate sensitivity of the fund is high with the average maturity at 6.53 years. Canara Robeco Income Fund has had a rough ride in the past two years. Its return in the past one year was 10.06%, almost on par with the category average of 10.03%. The expense ratio of the fund is high at 2%. The fund is benchmarked against the CRISIL Composite Bond Index. The fund is managed by Mr Ritesh Jain.

Birla Sunlife Dynamic Bond Fund Gem

Birla Sunlife Dynamic Bond Fund delivers superior annual performances and has often been a top quartile performer. Of the 29 quarters of its existence, the fund has underperformed in just four. The fund returned an annualised 9.5% over a five-year period. That is a good 2.4 percentage points higher than its benchmark. The category average return was an annualised 7.4% during this period. The fund has returned 10.6% in a year, thanks to falling yields across instruments with various maturity periods. Higher accruals (interest payout from the instruments) also propped returns. Birla Sunlife Dynamic Bond Fund has flexibility to increase or decrease its portfolio maturity based on the interest rate outlook. This essentially shifts the responsibility of managing a debt portfolio actively from the investor to the fund manager. Their dynamic nature, nevertheless, makes funds of this category slightly risky. The duration of the portfolio as of October 2012 was 3.75 years compared with 2.7 years in August 2011. The yield to maturity of the portfolio is 9.08%. The fund managed Rs 12,125 crore of assets as of December 2012. Its large size, besides high cash holding, allows it to latch on to good debt opportunities when they arise and also diversify the portfolio. The cash holdings also provide for investor redemptions without affecting fund performance. The cash holdings as of October 2012 accounted for 9% of the portfolio. In spite of high cash holdings, the fund holds instruments of 66 different issuers in its portfolio. This somewhat diversifies the fund from company-specific risks. The holdings are predominantly in high quality instruments such as gilts, AAA rated bonds, AA+ rate bonds, and top rated short-term debt. Top-rated instruments have better liquidity than the ones with lower rating. This allows the fund to churn the portfolio without too much price risks. The expense ratio of the fund is 1.12%. The fund is benchmarked against the CRISIL Composite Bond Index. The fund is managed by Mr Maneesh Dangi.

Birla Sunlife Government Securities Fund (LT) Gem

Launched in October 1999, the fund has an AUM of Rs 303 crore. The one-year return of the fund is 10.97% as against the category average of 10.26%. The fund has five holdings with an average maturity of 10.67 years and the yield to maturity of 8.34%. With a compounded annual return of 11.3% over the last three years, the fund convincingly beat its benchmark I-Sec Li-Bex, by over four percentage points. Active management of interest rate risk and ability to identify and benefit from short-term technical abnormalities in the interest rate curve have ensured that the fund is among the top five in the medium and long-term debt funds category. While the name of the scheme may suggest that it is a typical long-term gilt scheme, the fund has a highly flexible strategy. It can take exposure to government securities of both Central and State governments and can also invest in more short-term treasury bills. To this extent, it can take advantage of any rallying interest rate scenario by moving to short-term treasury bills. This not only protects the portfolio from any lack-lustre performance in long-dated instruments but also peps up returns albeit for a short duration. A more important asset allocation mandate is that the fund can only invest in government securities. This effectively brings the credit risk of the fund's portfolio to almost nil as all government instruments come with a sovereign guarantee. The fund has also been adept in changing the maturity profile of its portfolio. It has now shifted to 91-day treasury bills from holding gilts with a maturity of 7.7 years five months ago to ride the current high short-term interest rate wave. The expense ratio of the fund is 1.5%.

BSL Floating Rate Fund (ST) Gem

This relatively young fund, launched in October 2005, boasts of a massive AUM of Rs 4423 crore.  In the past one year, this liquid fund has returned 9.83% as against the category average of 9.28%. Commercial Papers constitute the lion’s share of the portfolio at 44% and Certificate of Deposit at 11%. The cash exposure is very high at 40%. Being a liquid fund, the average maturity is 0.09 years. The number of holdings in the fund’s portfolio is 23 with an average yield to maturity at 8.6%. The expense ratio is a mere 0.2%. The fund is benchmarked against the CRISIL Liquid Index. Sunaina da Cunha and Kaustubh Gupta are the fund managers.

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