NFO NEST

December 2012

Banking Debt Funds flood the NFO market

Asset management companies have started offering banking debt funds, a thematic debt fund designed as a long-term investment solution for debt investors looking for a focused exposure and for investors averse to taking credit risk on their investment portfolios. Investors have been showing interest in these funds, despite concerns of rising non-performing loans among public sector banks. Religare Mutual Fund, Principal Mutual Fund, and Axis Mutual Fund already have banking debt funds in their portfolios. Several others are in the pipeline, Reliance Mutual Fund, ICICI Mutual Fund, and Birla Sun Life Mutual Fund, to name a few. Banking debt comprises investment in CDs and bank bonds. A bank debt fund or CD fund is launched primarily to take advantage of attractive yields prevalent for bank CDs which are considered to be relatively superior credit as compared to corporate debt. The benchmark 3-month CD is currently trading at 8.4% p.a. Bank debt funds generate 'liquid fund type returns' over a one-year period. Liquid funds, as a category, have returned 9.4% over the past one year. Investment in bank debt and money market instruments, treasury bills, government securities, and securities issued by Public Financial Institutions is primarily with the intention of maintaining high credit quality and liquidity.

Two debt funds and one hybrid asset allocation fund find its place in the December 2012 NFO NEST. A welcome change indeed!

Union KBC Asset Allocation Fund - Conservative

Opens: December 3, 2012

Closes: December 17, 2012

Union KBC Asset Allocation Fund - Conservative Plan is an open ended hybrid fund which will build a portfolio by investing across equities, gold, and debt. Union KBC, a Joint Venture setup between Union Bank of India and KBC Asset Management NV is a relatively new entrant to the mutual fund space and has been in existence only since 2011. Union KBC Asset Allocation Fund - Conservative Plan will have a 15-25% allocation to equity, 55-95% allocation to debt, and 0-20% allocation to gold. While the equity and debt component of the portfolio will be actively managed, the gold portion of the portfolio will be invested in Gold ETFs of other mutual funds. Investors who do not have actively managed portfolios can use such multi asset allocation funds. Since these funds invest in multiple assets there is automatic rebalancing which works in favour of the investor. These funds are taxed like debt funds and hence will give lower post-tax returns. The fund is co-managed by Ashish Ranawade (CIO) and Parijat Agrawal (Head-Fixed Income).

 

IDBI Gilt Fund

Opens: December 5, 2012

Closes: December 17, 2012

IDBI Mutual Fund has launched a new fund namely, IDBI Gilt Fund, an open ended gilt fund. The investment objective of the fund is to provide regular income along with opportunities for capital appreciation through investments in a diversified basket of central government securities, state government securities, treasury bills, and other similar instruments. IDBI Gilt Fund is an approved instrument for investment by exempt provident funds, superannuation funds, gratuity funds and also under the new pension scheme. IDBI Gilt Fund will invest in Gilt securities which bear zero-credit risk and offer adequate liquidity. The fund will dynamically manage duration of gilt securities so as to optimize returns in the backdrop of present uncertainties. The performance of the fund will be benchmarked against CRISIL Gilt Index. The fund will be managed by Gautam Kaul.

Religare Bank Debt Fund

Opens: December 10, 2012

Closes: December 24, 2012

Religare Bank Debt Fund is an open ended debt fund. The investment objective of the fund is to generate optimal returns by investing in a portfolio of debt and money market instruments issued primarily by banks. The fund will invest 80%-100% of assets in debt and money market instruments issued by banks while up to 20% of the assets will be invested in securities issued by public financial institutions, treasury bills, CBLOs, government securities, units of debt and liquid mutual fund schemes. Risk averse investors looking for a portfolio with relatively low credit risk and offering superior liquidity can consider investing in a bank debt fund. The performance of the fund will be benchmarked against CRISIL Short Term Bond Fund Index. The fund will be managed by Mr. Nitish Sikand.

Morgan Stanley Gilt Fund, Morgan Stanley Ultra Short-term Bond Fund, R*Shares CNX 100 Fund, Axis Hybrid Yearly Interval Fund – Series 1 to 3, Sundaram Select Microcap – Series 1, BOI AXA Gold Income Stabilizer Fund, and Edelweiss Gold Exchange Traded Fund  are expected to be launched in the coming months.