Presentation on theme: "DEBT FUND ANALYSIS Oct 16, 2008 – Oct 31, 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 traded on mixed sentiments as diverse monetary measures hit the market at regular intervals The bond market opened positive on account of improved cash conditions (call at 10%), it witnessed selling pressure,; thereby, pushing benchmark bond yield to intra-week high of 8.04% As the RBI governor and Finance Minister rolled out relief measures for the domestic liquidity crunch as well as to support the rupee, bonds reacted positively; the 10-year rallying as its yield fell to a fresh low of 7.64% (before closing at 7.72% Liquidity/borrowings: Measures to improve liquidity: in the form of CRR cut with retrospective effect, INR 250 bn reimbursement of the farm loan waiver, introduction of 15-day repo for a cumulative INR 200 bn, and permission to banks to borrow against 0.5% of their NDTL for further lending to Mutual Funds While all these measures are adequate to improve liquidity, as call rate dropped to 7%-levels, its pass- through to the non-SLR market is likely to be seen with a lag effect The cash situation is likely to improve on its status quo as impact of the following reporting week, supplemented by fresh inflows of INR 90 bn, is likely to weigh on outflows of INR 213 bn Inflation over past few weeks has shown a clear indication of slowdown. The manufacturing index has remained flat in the past two months and is likely to fall further as global commodity prices ease and domestic prices reflect the same with a lag
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 ICICI Prudential Flexible Income Plan DWS Liquid Plus Fund Reliance Liquid Plus Fund JM Money Manager Fund - Super Plus Plan 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 13 FMPs with tenure less than 1 Year Name of the SchemeTenure Closing Date Min. Investment Indicative Yield (Pre Tax) Edelweiss Monthly Interval Fund - Series 1 (Insti.)30 Days23-Oct-0810,000,00011.05% Edelweiss Monthly Interval Fund - Series 1 (Reg.)30 Days23-Oct-0810,00010.95% Tata Fixed Income Portfolio Fund – A3 (Insti.)30 Days22-Oct-0810,000,00011.00% Tata Fixed Income Portfolio Fund – A3 (Reg.)30 Days22-Oct-0810,00011.00% Lotus India Quarterly Interval Fund - Plan J (Insti.)3 months22-Oct-0850,00012.00% Lotus India Quarterly Interval Fund - Plan J (Reg.)3 months22-Oct-085,00011.85% Templeton Fixed Horizon Fund - Series X (Plan E – 3 mths)3 months22-Oct-085,000NA Tata Investment Plan – 3 Scheme A (Insti.)3 months21-Oct-0810,000,00011.90% Tata Investment Plan – 3 Scheme A (Reg.)3 months21-Oct-0810,00011.80%
DEBT FUND ANALYSIS 14 FMPs with tenure more than 1 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% 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%
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