Monday, December 09, 2013


December 2013

Debt funds offer a plethora of options where funds range from dynamic funds, medium term funds, and long term income funds. These are usually all-weather funds as they are considered to be less risky as compared to their equity counterparts and are an alternative to investors keen on holding fixed income instruments. Debt funds act as a cushion for an all-equity portfolio. Debt funds are supposed to be the simple choice for risk-averse investors. But, is it really that simple given the huge variety of debt funds available, with not much to differentiate when it comes to their investment mandate? To be fair, barring basic schemes such as dynamic bond funds, plain income funds, ultra short-term, and short-term funds, debt mutual funds are not designed for retail investors at all. Instead, this category primarily attracts institutional investors as they are actually the biggest investors in debt funds.

All the GEMs from the 2012 GEMGAZE have performed reasonably well though thick and thin and figure prominently in the 2013 GEMGAZE too.

ICICI Prudential Gilt Investment Fund Gem

Launched in August 1999, ICICI Prudential Gilt Investment Fund sports an AUM of Rs 432 crore. Being a gilt fund, the credit quality of the portfolio is very high with Government of India securities constituting 96.78% of the total assets. There are six holdings in all with an average maturity of 15.5 years. The fund earned a return of 0.87% in the past one year as against the category average of 3.98%. The expense ratio is 1.42%. The fund is benchmarked against the I-SEC Li-BEX index. The fund is managed by Mr. Rahul Goswami. Goswami is pragmatic in his approach—he is mainly focused on medium- to longer-term trends, but he has displayed an ability to combine them with shorter-term cyclical considerations to build portfolios that are well-positioned to take advantage of all market conditions. This is borne out by the consistency in the fund’s performance from Oct 2005 to Oct 2009, when it featured in the top performance quartile 92% of the time, on a one-year rolling basis. Goswami is also willing to take big bets against the norm if he believes the risk/reward is favourable and his calibre and research-intensive approach are well-suited to such moves.

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 381 crore with 14 holdings. Central Government loan constitutes 65% of the total assets, bonds 12%, debentures 10%, and commercial papers 7%. The credit quality of the fund is reasonably high. The interest rate sensitivity of the fund is high with the average maturity at 6.94 years. Canara Robeco Income Fund has had a rough ride in the past two years. Its return in the past one year is 5.69%, almost on par with the category average of 6.12%. The expense ratio of the fund is high at 1.72%. The fund is benchmarked against the CRISIL Composite Bond Index. The fund is managed by Mr Akhil Mittal since May 2013.

Birla Sunlife Dynamic Bond Fund Gem

Birla Sunlife Dynamic Bond Fund manages assets worth Rs 14,710 crore. This fund is a steady top quartile performer with low volatility. It has delivered returns across interest-rate cycles and is among the top few in its category. The one-year return of the fund is 7.02% as against the category average of 6.12%. Over one-, three- and five-year time-frames, the fund has consistently outpaced its benchmark Crisil Composite Bond Fund Index by comfortable margins of 1.5-2.5 percentage points. In the last five years, Birla Dynamic has generated compounded annual returns of 9.4%, putting it among the top couple of funds in its category and ahead of peers such as SBI Dynamic Bond, Kotak Flexi Debt, and BNP Paribas Flexi Debt. With diversified holdings and generally accurate calls on portfolio duration, the fund has rewarded its investors well. This fund’s portfolio is designed to dynamically align with the interest rate outlook by increasing or decreasing the maturity duration of investments accordingly. Although it’s dynamic mandate allows it to take bets across the yield curve, the average maturity has exceeded four years only twice; once touching 11 too. The portfolio’s average maturity profile is 1.25-2.5 years generally and, at select times, depending on the interest rate scenario and market conditions, the tenure is longer. The yield to maturity too has generally been relatively high and better than fixed deposits or MIPs of similar duration, at 9.48%. More than 60% of the fund’s holding are in the highest AAA rated instruments such as corporate debt, debentures, and certificates of deposit. Another 21.1% of the fund’s investments are in AA rated securities, but these investments too are in well-established names. In addition, 12.8% of the holdings are in sovereign debt that carry nearly no default risk. To play it safe, the fund also increases cash position during times of highly uncertain interest rate scenarios. The expense ratio is 1.08%. Maneesh Dangi is the fund manager since September 2007.

Birla Sunlife Government Securities Long term Fund Gem

Launched in October 1999, the fund has an AUM of Rs 528 crore. The one-year return of the fund is 3.64% as against the category average of 3.98%. The fund is benchmarked against the I-Sec Li-Bex. The fund has seven holdings with an average maturity of 6.98 years and the yield to maturity of 8.97%. 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 expense ratio of the fund is 1.74%. Prasad Dhonde has been the fund manager since October 2012.

Birla Sunlife Floating Rate Short term Fund Gem

This relatively young fund, launched in October 2005, boasts of a massive AUM of Rs 3397 crore.  In the past one year, this liquid fund has returned 9.02% as against the category average of 8.76%. Debentures constitute the lion’s share of the portfolio at 53%, Certificate of Deposit at 11%, and Commercial Papers at 10%. The cash exposure is very high at 25%. Being a liquid fund, the average maturity is 0.11 years. The number of holdings in the fund’s portfolio is 38 with an average yield to maturity at 9.91%. The expense ratio is a mere 0.23%. The fund is benchmarked against the CRISIL Liquid Index. Sunaina da Cunha and Kaustubh Gupta are the fund managers.

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