Strategy

This fund has an active management style which emphasises quality of debt, tapping opportunities from interest rate changes and deriving maximum value by targeting undervalued instruments. Its investment approach is focused towards the economy's yield curve and analysis of individual securities. This balanced approach using top-down and bottom-up analysis has helped it deliver consistent returns. The fund manager is careful to avoid undue credit risk in the portfolio. Extensive credit research, in-depth analysis, company interactions that go beyond published ratings help in identifying opportunities across the spectrum helped in earning additional alpha.

In the beginning of 2012, in anticipation of rate cuts, there was a lot of interest and exposure to gilt funds. However, based on their macroeconomic analysis, the fund manager remained focused on corporate bonds. Given fiscal-related risks, corporate bonds looked relatively attractive and it paid off to focus on this segment.

Performance

This fund has outperformed the category average on 8 out of 13 occasions. Although the fund went through a rough phase from 2004 to 2006 and in 2008, it has recovered since then and done better than its peers over the past 3 years. In 2012, it posted 11.98 per cent return, better than the category average of 9.94 per cent. The fund manager's belief that growth slowdown has bottomed out and rating profiles will start improving over the next year or so, will augur well for returns.

Managing a high yield compact debt portfolio has done well for this scheme with the fund's maturity in the range of 156 days to 21 years compared to the category average (maximum) of 8.8 years. However, returns could be higher if the expense ratio is better managed from its current 1.73 per cent. The ongoing easing in borrowing and input costs should help this fund do well in the near- to medium-term.

Why invest?

This fund has a well-diversified portfolio, with liquidity and credit risk maintained in line with its objective. The fund manages active maturities without taking an extremely aggressive stance and is suitable for investors looking for a horizon of six months to 3 years.

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