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DEBT FUND ANALYSIS
DEBT FUND ANALYSIS
Oct 16, 2008 – Oct 31, 2008
DEBT FUND ANALYSIS
Debt Market OutlookDebt 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
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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
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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
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DEBT FUND ANALYSIS
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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
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FMPs with tenure less than 1 Year
Name of the Scheme TenureClosing
DateMin.
InvestmentIndicative Yield
(Pre Tax)
Edelweiss Monthly Interval Fund - Series 1 (Insti.) 30 Days 23-Oct-08 10,000,000 11.05%
Edelweiss Monthly Interval Fund - Series 1 (Reg.) 30 Days 23-Oct-08 10,000 10.95%
Tata Fixed Income Portfolio Fund – A3 (Insti.) 30 Days 22-Oct-08 10,000,000 11.00%
Tata Fixed Income Portfolio Fund – A3 (Reg.) 30 Days 22-Oct-08 10,000 11.00%
Lotus India Quarterly Interval Fund - Plan J (Insti.) 3 months 22-Oct-08 50,000 12.00%
Lotus India Quarterly Interval Fund - Plan J (Reg.) 3 months 22-Oct-08 5,000 11.85%
Templeton Fixed Horizon Fund - Series X (Plan E – 3 mths) 3 months 22-Oct-08 5,000 NA
Tata Investment Plan – 3 Scheme A (Insti.) 3 months 21-Oct-08 10,000,000 11.90%
Tata Investment Plan – 3 Scheme A (Reg.) 3 months 21-Oct-08 10,000 11.80%
DEBT FUND ANALYSIS
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FMPs with tenure more than 1 year
Name of the Scheme TenureClosing
DateMin.
Investment
Indicative Yield (Pre
Tax)
TATA FIXED INVSTMENT PLAN Series 4 Scheme B (SHIP.) 18 months 16-Oct-08 10,000,000 11.40%
TATA FIXED INVSTMENT PLAN Series 4 Scheme B (HIP.) 18 months 16-Oct-08 2,500,000 11.00%
TATA FIXED INVSTMENT PLAN Series 4 Scheme B (RIP.) 18 months 16-Oct-08 10,000 10.60%
Kotak FMP 19M Series 1 (Insti.) 19 months 13-Oct-08 1,000,000 11.40%
Kotak FMP 19M Series 1 (Reg.) 19 months 13-Oct-08 5,000 10.60%
BIRLA SUN LIFE FIXED TERM PLAN - SERIES BG (370 Days) (Insti.) 370 Days 08-Oct-08 10,000,000 11.35%
BIRLA SUN LIFE FIXED TERM PLAN - SERIES BG (370 Days) (Reg.) 370 Days 08-Oct-08 5,000 10.75%
IDFC Fixed Maturity Plan Nineteen Months Series 1 (Insti.) 19 months 07-Oct-08 10,000,000 11.00%
IDFC Fixed Maturity Plan Nineteen Months Series 1 (Reg.) 19 months 07-Oct-08 5000 11.00%
ABN AMRO Fixed Term Plan - Series 14: Plan A (Insti.) 370 Days 06-Oct-08 2,500,000 11.30%
ABN AMRO Fixed Term Plan - Series 14: Plan A (Reg.) 370 Days 06-Oct-08 5,000 10.70%
ING Yearly FMP 366 - Series A2 (Insti.) 366 Days 6-Oct-08 500,000 11.35%
ING Yearly FMP 366 - Series A2 (Reg.) 366 Days 6-Oct-08 5,000 10.55%
DEBT FUND ANALYSIS
Edelweiss Securities Ltd 11th Floor, 1101 A&B Godrej Coliseum Off Eastern Express Highway, Sion (E)Mumbai – 400022Ph: +91 22 4088 5757
Edelweiss Securities Ltd10th Floor, Hindustan Times House,18-20, Kasturba Gandhi Marg,New Delhi - 110001 Ph: +91 11 4367 1111
Edelweiss Securities Ltd1st Floor, Plot No. 4009,100 ft Road, HAL II Stage,Bangalore – 560008Ph: +91 88 4150 1214
Edelweiss Securities Ltd10th Floor, Arcadia,
Nariman Point,Mumbai – 400021
Ph: +91 22 4097 9400
Information/Sales: +91 22 4097 9400
Edelweiss Securities Ltd 2nd Floor, Savitri Towers, 3A Upper Wood Street, Kolkata – 700017 Ph: +91 33 4010 4646
Contact Details
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DEBT FUND ANALYSIS
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