Presentation on theme: "DEBT FUND ANALYSIS Oct 01, 2008 – Oct 15, 2008. DEBT FUND ANALYSIS Debt Market Outlook Debt Market Update Debt Portfolio Strategy Liquid Plus Funds are."— Presentation transcript:
DEBT FUND ANALYSIS Debt Market Outlook Debt Market Update Debt Portfolio Strategy Liquid Plus Funds are still a safer bet from a short term (3-6 months) horizon The current FMP yields are high and may not sustain in the long run, therefore investment in long term FMPs is recommended 2 Market movements The G-sec market was on a negative note as bears clawed down the bond prices on back of tight liquidity and devolvement of the 7.94% 2021 The 10-year bond is trading at a four week high of 8.73% and the auctioned bonds are trading over 10bps above their cut-offs, participants found these levels too lucrative to miss Annual inflation for the week ended September 20, 2008, witnessed a pull back falling below the 12% mark to 11.99%. Major contributor to this fall was a pull back in primary articles and food products Liquidity/borrowings: Liquidity remained constrained for issuers of non- convertible debentures on October 1; the LAF repo reporting the highest-ever borrowing of INR 917.20 bn Participants remained cash-starved during this non reporting week, as investor demand for fixed income instruments continued to reel (dwindle) under advance tax outflows of INR 400 bn; the daily average LAF repo at INR 908.40 gained INR 270 bn over the previous week Liquidity is expected to ease from current levels. A steep rise in inflows on account of redemptions and interest payments will inject money into the system Participants are likely to have made their CRR provisions this will reduce overall pressure on liquidity Overnight money market rates are expected to soften from present levels; improvement of 200- 300bps will not be surprising
DEBT FUND ANALYSIS Recommended Debt MF Categories Liquid Plus Funds: These funds have favorable portfolio composition. These funds are expected to invest close to 40% on higher side and 25% on the lower side in Corporate Bonds with maturity above 1 year These funds are able to take advantage of rise in Overnight rates and also increase the portfolio yield by taking call in high duration bonds. In the current scenario where overnight rates are expected to remain high and yields on corporate bond to ease slightly from current levels. These funds are better positioned to take advantage of both the scenarios These funds provide an indirect bet on Short to Medium term bonds. In case of 100% investment in these bonds an investor can be subject to mark to market compulsion and any rise in rates is likely to hurt the return on investment. However, with investment in Liquid Plus Funds an investor can take advantage of spread investment strategy of these funds These funds are treated as an income fund and are exempt from the rise in Dividend Distribution Tax. Old rate of Dividend Distribution Tax is applicable to these funds 3
Recommended Schemes in Liquid Plus Funds Liquid Plus Funds – Retail & Institutional Birla Sun Life Liquid Plus Fund DWS Liquid Plus Fund ICICI Prudential Flexible Income Plan Reliance Liquid Plus Fund 7
DEBT FUND ANALYSIS Recommended Debt MF Categories Fixed Maturity Plans: Product with various maturities FMPs are available with numerous maturity options –1 month, 3 months, 6 months, 1 year, 3 years and 5 years. One can invest in the relevant plan depending upon his investment horizon and the requirement of cash flows on maturity Minimal risk Unlike debt funds, which are exposed to three kinds of risks viz. interest rate, credit and liquidity risk, FMPs are a better option FMPs are least exposed to interest rate risk as the fund manager holds the instruments till maturity getting a fixed rate of return. Thus FMP can manage to get a specific interest on these instruments and investors have a fair idea about it. This helps investors tailor their investments as per their future cash requirements They primarily invest in AAA, P1+ or such kind of good rated credit instruments with maturity profile of the securities in line with the maturity of the plan so there is also low credit risk with minimal liquidity risk involved Tax Efficient Returns FMPs yield competitive & tax efficient returns as the tax rates on a FMP are comparatively lesser than the tax rates in other debt funds 12
DEBT FUND ANALYSIS FMPs with tenure less than 1 Year Name of the SchemeTenure Closing Date Min. Investment Indicative Yield (Pre Tax) ING Quarterly FMP 91 – Series A3 (Insti.)91 Days06-Oct-08500,00011.35% ING Quarterly FMP 91 – Series A3 (Reg.)91 Days06-Oct-085,00010.55% HDFC FMP 90D September 2008 (Insti.)90 Days06-Oct-0810,000,00011.70% HDFC FMP 90D September 2008 (Reg.)90 Days06-Oct-085,00011.60% UTI Fixed Income Interval Fund - Series II - Quarterly Interval Plan VII (Insti.) 3 months06-Oct-081,000,00011.60% UTI Fixed Income Interval Fund - Series II - Quarterly Interval Plan VII (Reg.) 3 months06-Oct-0810,00011.40% DSPML FMP -3M - Series 16 (Insti.)3 months06-Oct-0810,000,00011.90% DSPML FMP -3M - Series 16 (Reg.)3 months06-Oct-0810,00011.70% DSP Merrill Lynch FMP - 1M - Series 3 (Insti.)1 months06-Oct-0810,000,00011.90% DSP Merrill Lynch FMP - 1M - Series 3 (Reg.)1 months06-Oct-0810,00011.85% ABN AMRO Interval Fund – Series 2 - Quarterly Plan N3 months06-Oct-0810,00011.95% 13
DEBT FUND ANALYSIS FMPs with tenure more than1 Year Name of the SchemeTenure Closing Date Min. Investment Indicative Yield (Pre Tax) TATA FIXED INVSTMENT PLAN Series 4 Scheme B (SHIP.)18 months16-Oct-0810,000,00011.40% TATA FIXED INVSTMENT PLAN Series 4 Scheme B (HIP.)18 months16-Oct-082,500,00011.00% TATA FIXED INVSTMENT PLAN Series 4 Scheme B (RIP.)18 months16-Oct-0810,00010.60% JM FMF -XIII - Yearly Plan (Insti.)375 Days15-Oct-08500,00011.40% JM FMF -XIII - Yearly Plan (Reg.)375 Days15-Oct-085,00010.75% Kotak FMP 19M Series 1 (Insti.)19 months13-Oct-081,000,00011.40% Kotak FMP 19M Series 1 (Reg.)19 months13-Oct-085,00010.60% BIRLA SUN LIFE FIXED TERM PLAN - SERIES BG (370 Days) (Insti.) 370 Days08-Oct-0810,000,00011.35% BIRLA SUN LIFE FIXED TERM PLAN - SERIES BG (370 Days) (Reg.) 370 Days08-Oct-085,00010.75% IDFC Fixed Maturity Plan Nineteen Months Series 1 (Insti.)19 months07-Oct-0810,000,00011.00% IDFC Fixed Maturity Plan Nineteen Months Series 1 (Reg.)19 months07-Oct-08500011.00% ABN AMRO Fixed Term Plan - Series 14: Plan A (Insti.)370 Days06-Oct-082,500,00011.30% ABN AMRO Fixed Term Plan - Series 14: Plan A (Reg.)370 Days06-Oct-085,00010.70% ING Yearly FMP 366 - Series A2 (Insti.)366 Days6-Oct-08500,00011.35% ING Yearly FMP 366 - Series A2 (Reg.)366 Days6-Oct-085,00010.55% 14
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