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DEBT FUND ANALYSIS
DEBT FUND ANALYSIS
Sep 16, 2008 – Sep 30, 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 market witnessed aggressive buying, stoked by crude price decline and an estimated base effect-driven softer inflation
Annual inflation for the week ended August 30 reported a softening for a third consecutive week, standing 24bps lower at 12.10%
Liquidity/borrowings:
Liquidity remained within comfort levels .This can be attributed to inflows of INR 156 bn and reporting week
On grounds of improved cash conditions, daily average call rate eased to 8.64% compared to 9.14%
The revision in the previous inflation figure also narrowed from 40-60bps in the month of August to
20-30bps for the past two releases
This, along with continued softening of inflation is indicative of reduced inflationary expectations and,
thereby, declining momentum
CD rates have begun their upward movement from this week and are expected to continue to do so
even next week on account of cash crunch ,excess provision on account of non-reporting week is likely
to tighten the screw
Liquidity is likely to be tight on account of various outflows, apart from advance tax outflow
Although sentiment for the G-sec market remains bullish, amidst declining crude prices and lower W-o-W inflation numbers, buying activity is likely to be less intense next week (September 15-19) on account of significantly higher cash constraints
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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DEBT FUND ANALYSIS
Recommended Schemes in Liquid Plus Funds
Liquid Plus Funds – Retail & Institutional
DWS Money Plus Fund
ICICI Prudential Flexible Income Plan
Birla Sun Life Liquid Plus Fund
Reliance Liquid Plus Fund
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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
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DEBT FUND ANALYSIS
FMPs with tenure less than 1 Year
Name of the Scheme TenureClosing
DateMin.
InvestmentIndicative Yield (Pre
Tax)
AIG Quarterly Interval Fund - Series III (Insti.) 3 months 22-Sep-08 10,000,000 NA
AIG Quarterly Interval Fund - Series III (Reg.) 3 months 22-Sep-08 10,000 NA
DSP Merrill Lynch FMP - 1M – Series 2 1 month 22-Sep-08 10,000,000 10.15%
DSP Merrill Lynch FMP - 1M – Series 2 1 month 22-Sep-08 10,000 10.10%
Lotus India Monthly Interval Fund - Plan B 30 Days 18-Sep-08 5,000 10.75%
Tata Fixed Income Portfolio Fund – A3 (Insti.) 30 Days 17-Sep-08 10,000,000 10.75%
Tata Fixed Income Portfolio Fund – A3 (Reg.) 30 Days 17-Sep-08 10,000 10.75%
ING Fixed Maturity Fund – Series 51 (Insti.) 183 Days 17-Sep-08 500,000 11.40%
ING Fixed Maturity Fund – Series 51 (Reg.) 183 Days 17-Sep-08 5,000 10.50%
JM Fixed Maturity Fund – Series XII - Quarterly Plan 3 (Insti.) 3 months 17-Sep-08 500,000 11.40%
JM Fixed Maturity Fund – Series XII - Quarterly Plan 3 (Reg.) 3 months 17-Sep-08 5,000 10.80%
Birla Sunlife Interval Income Fund- Monthly Plan - Series 1 (Insti.) 1 months 17-Sep-08 100,000 10.40%
Birla Sunlife Interval Income Fund- Monthly Plan - Series 1 (Reg.) 1 months 17-Sep-08 5,000 10.40%
DWS Quarterly Interval Fund 3 months 17-Sep-08 5,000 11.25%
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DEBT FUND ANALYSIS
FMPs with Indexation benefit
Name of the Scheme Tenure Closing Date Min. Investment Indicative Yield (Pre Tax)
ICICI Prudential Fixed Maturity Plan Series 47 - One Year Plan C (Insti.) 370 Days 26-Sep-08 10,000,000 NA
ICICI Prudential Fixed Maturity Plan Series 47 - One Year Plan C (Reg.) 370 Days 26-Sep-08 5,000 10.70%
ICICI FMP Series 48 - 3 Years Plan A (Insti.) 1095 Days 24-Sep-08 2,500,000 NA
ICICI FMP Series 48 - 3 Years Plan A (Reg.) 1095 Days 24-Sep-08 5,000 11.50%
HDFC FMP 22M September 2008 (Insti.) 22 months 22-Sep-08 10,000,000 11.70%
HDFC FMP 22M September 2008 (Reg.) 22 months 22-Sep-08 5,000 11.20%
ING Yearly FMP 366- Series A1 (Insti.) 366 Days 22-Sep-08 500,000 11.60%
ING Yearly FMP 366- Series A1 (Reg.) 366 Days 22-Sep-08 5,000 10.70%
BIRLA SUN LIFE FIXED TERM PLAN - SERIES BE (Insti.) 24 months 22-Sep-08 10,000,000 11.35%
BIRLA SUN LIFE FIXED TERM PLAN - SERIES BE (Reg.) 24 months 22-Sep-08 5,000 11.00%
Kotak FMP 12M Series 9 (Insti.) 12 months 23-Sep-08 5,000,000 11.50%
Kotak FMP 12M Series 9 (Reg.) 12 months 23-Sep-08 5,000 10.75%
Lotus India FMP - 375 - Days Series XVII (Insti.) 375 Days 18-Sep-08 500,000 11.60%
Lotus India FMP - 375 - Days Series XVII (Reg.) 375 Days 18-Sep-08 5,000 11.10%
Tata Fixed Investment Plan – 4 Scheme A (Super High investment Plan) 19 months 18-Sep-08 10,000,000 11.45%
Tata Fixed Investment Plan – 4 Scheme A (High investment Plan) 19 months 18-Sep-08 2,500,000 11.05%
Tata Fixed Investment Plan – 4 Scheme A (Retail investment Plan) 19 months 18-Sep-08 10,000 10.55%
SBI SDFS 370 days - 2 (Insti.) 370 Days 18-Sep-08 500,000 11.60%
SBI SDFS 370 days - 2 (Reg.) 370 Days 18-Sep-08 5,000 11.00%
Templeton Fixed Horizon Fund - Series XI - (Plan C – 367 days plan) 367 Days 17-Sep-08 5,000 11.20%
IDFC FMP YS-26 (Insti.) 367 Days 17-Sep-08 10,000,000 11.50%
IDFC FMP YS-26 (Reg.) 367 Days 17-Sep-08 5,000 10.85%
DSP Merrill Lynch FMP - 12M – Series 4 (Insti.) 12 months 17-Sep-08 10,000,000 11.00%
DSP Merrill Lynch FMP - 12M – Series 4 (Reg.) 12 months 17-Sep-08 5,000 10.35%
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Contact Details
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DEBT FUND ANALYSIS
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