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February 25, 2015
Debt Mutual Fund Picks
Data as on January 31, 2015
Macro data round up
The Reserve Bank of India (RBI), in its sixth bi-monthly monetary
policy review, kept the policy repo rate unchanged at 7.75%.
However, the RBI reduced the Statutory Liquidity Ratio of
scheduled commercial banks by 50 basis points from 22.0% to
21.5% of their Net Demand and Time Liabilities with effect from
the fortnight beginning February 7, 2015. The RBI also replaced
the export credit refinance facility with the provision of systemlevel liquidity with effect from February 7, 2015.
India’s Gross Domestic Product (GDP) grew 7.5% in the third
quarter of FY14-15 compared to an upwardly revised 8.2% rise
(5.3% earlier) in the September quarter. The Government
forecasted annual economic growth to accelerate to 7.4% during
FY14-15.
Data from the Commerce Ministry showed that the country’s
exports contracted by 11.19% to $23.88 billion in January this
year compared to the same month in 2014 when imports fell
11.39% to $32.2 billion, leaving a trade deficit of $8.32 billion.
The trade gap in January last year stood at $9.45 billion.
Key rates
Closing
value
Weekly
Mthly
Yearly
Inflation*
-0.39
-0.39
0.11
5.11
91 Days T-Bill
8.18
8.12
8.22
8.80
364 Days T- Bill
8.05
7.89
8.30
8.94
10 Year G-Sec Yield
7.69
7.70
7.86
8.77
MIBOR
7.53
7.86
9.01
8.12
6 Months LIBOR (USD)
0.36
0.35
0.36
0.34
Call Money Rate
7.72
7.86
8.91
8.29
Repo Rate
6.75
6.75
7.00
7.00
Reverse Repo
7.75
7.75
8.00
8.00
CRR
4.00
4.00
4.00
4.00
SLR^
21.5
22.00
22.00
23.00
Bank Rate
8.75
8.75
9.00
9.00
*Wholesale Inflation rate for January, 2015
^SLR rate as on February 3, 2015
India’s wholesale inflation turned negative in January mainly on the back of a sharp fall in fuel prices. The Wholesale Price Index (WPI)based inflation for January was reported at (-) 0.39% against 0.11% in December. This is the lowest level of inflation since June 2009.
On the global front, Greece reached a deal with euro zone creditors to extend its bailout agreement for four months. The European
Central Bank announced higher-than-expected monthly bond-buying program, amounting to 60 billion euro till September 2016 to
counter deflationary pressures within the Euro zone and revive the stagnating economy. The U.S. Federal Reserve, in its monetary
policy review meeting, kept interest rates unchanged and reiterated its pledge to be "patient" on raising interest rates. This comes
amid concerns that unusually low inflation could affect the U.S. economic recovery.
Bond / Debt market round up
Bond yields fell for the fifth consecutive month mainly on the back of an unexpected rate cut by the Reserve Bank of India (RBI).
Continued fall in global crude oil prices and better-than-expected consumer inflation data for December further boosted bond prices.
Fund inflows into the debt market also provided further support. Foreign Portfolio Investors bought debt worth Rs. 21,089 crore in
January 2015, much higher than Rs. 11,059 crore bought in the previous month and Rs. 12,356 crore in the same month of the previous
year. The inflow of January was the highest since July 2014. However, gains were capped as concerns over the Government’s ability to
meet the fiscal deficit target also weighed on investor sentiments to some extent.
The yield on the 10-year benchmark bond fell 17 bps to close at 7.69% against the previous month’s close of 7.86%, after moving in the
broad range of 7.69% to 7.90% over the month.
Bond / Debt Outlook: A couple of major events are lined up in February, which can have significant impact on bond markets. The Economic
Survey will be published on February 27 and subsequently the Union Budget will be published on February 28. Market participants will track
inflation numbers, both at wholesale and retail level. Next month, the Central Bank will conduct the auction of 91-days, 182-days and 364days Government of India Treasury Bills for an aggregate amount of Rs. 56,000 crore.
Model portfolio – Asset classes
Investor Profile
Fixed Income
Ultra Short Term
Short Term
Floating Rate Funds
Long Term
Gilt
Liquid Funds/Cash
Conservative
Moderately Conservative
Moderately Aggressive
70-75%
15-20%
10-15%
10-15%
5-10%
10-15%
20-25%
75-80%
10-15%
10-15%
5-10%
10-15%
20-25%
15-20%
80-85%
5-10%
5-10%
5-10%
15-20%
25-35%
10-15%
Sharekhan
1
February 25, 2015
Mutual Gains
Investment strategy
After the RBI kept key interest rates unchanged at its sixth bi-monthly monetary policy, movement in bond yields has remained mixed and
with a downward bias. The Union Budget to be announced on February 28 will be the next big trigger for the bond market. The market
expectations from the budget are unprecedented as it is the first non-coalition Government that the country has seen in decades, and
hence is less susceptible to arm twisting by populist demands. The Government’s fiscal consolidation process and concrete steps to boost
economic growth are keenly awaited. Investors can continue to target a portfolio similar to Moderately Aggressive funds, as a fall in yields
will improve returns.
Research Process
The model portfolio has been determined on the basis of the risk-return trade-off offered by various asset classes. As the risk appetite of
the investor increases, the return expectation also increases. The portfolio volatility as measured by the standard deviation of the
inherent asset classes has been used as a surrogate of risk. Allocation has been ascertained keeping in mind the trade-off between higher
volatility in returns and the safety of capital. Therefore, while gilt funds are the most secure, the relatively higher volatility in returns may
not be suitable for a conservative investor; at the same time a moderately conservative investor will be able to absorb the gyrations in
returns. The model portfolio has been expressed in ranges to offer flexibility in creating actual portfolios.
Sharekhan’s top debt fund picks
Monthly Income Plan
Funds that offer a marginal flavor of equity (upto 15% or more) especially for portfolios that are otherwise debt oriented. They
predominantly invest in debt and money market instruments.
Scheme Name
Returns (%)
(Simple Annualized)
AAUM **
(Rs Crs)
1Mth
3 Mths
6Mths
Exp*
Ratio
(%)
Avg.
Mat
(Days)
1 Yr
Credit Quality (% Allocation)
AAA/P+
AA/AA+
Below
AA
Cash &
Call
BSL MIP II - Wealth 25
353.3
31.6
32.3
32.6
31.7
0.4
--
49.1
3.1
1.6
46.3
Franklin India MIP
328.4
36.5
26.8
26.0
26.3
2.3
4132
58.3
21.0
--
20.6
HDFC Mult. Yld - 2005
186.7
9.0
12.5
14.0
22.0
1.8
265
74.7
--
--
25.3
UTI - MIS - Adv Fund
475.9
34.7
22.6
21.9
25.4
2.1
2110
51.7
19.4
--
28.9
BSL MIP II - Savings 5
226.7
18.9
22.8
22.1
20.5
1.3
--
62.4
9.5
4.3
23.8
28.7
19.0
18.5
19.5
Crisil MIP Blended
Income Funds
Funds that invest in income bearing instruments with any maturity and across the yield curve to generate regular income, such as
corporate bonds, gilts, treasury bills, certificates of deposit and commercial papers etc.
Scheme Name
Returns (%)
(Simple Annualised)
AAUM **
(Rs Crs)
1Mth
Axis Banking Debt Fund
3 Mths
6Mths
Exp*
Ratio
(%)
Avg.
Mat
(Days)
1 Yr
Credit Quality (% Allocation)
AAA/P+
AA/AA+
Below
AA
Cash &
Call
612.6
8.0
8.2
8.7
9.3
0.4
20
97.3
--
--
2.7
1528.1
19.3
15.9
15.4
14.2
1.9
1826
21.8
43.7
31.6
3.0
UTI Dynamic Bond Fund
431.6
22.8
21.0
17.0
16.1
1.1
4336
83.9
7.5
--
8.6
BNP Paribas Flexi Debt
222.4
26.4
25.2
20.5
15.5
2.0
5625
90.6
--
--
9.5
Can Robeco Income
160.6
30.0
24.8
21.0
16.1
1.9
6592
87.8
9.6
--
2.6
20.5
18.2
16.7
15.4
Franklin India IBA
Crisil Composite Bond
Sharekhan
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February 25, 2015
Mutual Gains
Short Term Debt Funds
Funds invest in short-term debt instruments of high quality and low risk, that mature in about next 15 to 18 months and generally
best suited to investors with 1 to 2 years of investment horizon.
Scheme Name
Returns (%)
(Simple Annualised)
AAUM **
(Rs Crs)
BSL Treasury Opt Plan
DSP Bl Inc Opp Fund
Kotak Flexi Debt Fund
BSL Dynamic Bond Fund
BSL ST Fund - DAP
2459.7
1531.4
405.6
9638.2
5426.3
Crisil ST Debt Index
Exp*
Ratio
(%)
1Mth
3 Mths
6Mths
16.3
16.2
17.7
20.0
14.1
14.1
12.0
13.7
22.8
11.6
14.0
11.8
12.4
19.2
11.7
13.2
11.6
11.0
16.0
11.5
11.3
10.7
10.7
10.8
Avg.
Mat
(Days)
1 Yr
0.6
1.7
1.5
1.3
0.3
-1405
916
---
Credit Quality (% Allocation)
AAA/P+
AA/AA+
Below
AA
Cash &
Call
80.1
29.4
55.0
78.5
78.7
7.5
21.0
18.0
0.3
14.1
-46.2
----
12.4
3.4
27.1
21.2
7.3
Ultra Short Term Funds
Funds that invest exclusively in debt instruments with very short maturity period, usually one year or less.
Scheme Name
BSL Savings Fund
Franklin LDF
IDFC MM Treasury Plan
Relig Invesco Credit Opp
IDFC MM Invest Plan
Returns (%)
(Simple Annualised)
AAUM **
(Rs Crs)
10908.8
2721.3
1066.2
2346.2
1738.0
Crisil Liquid Fund Index
Exp*
Ratio
(%)
1Mth
3 Mths
6Mths
9.2
12.3
8.2
7.4
8.0
9.0
10.3
7.8
7.6
8.2
9.2
10.2
8.2
7.7
8.6
9.7
10.4
8.7
8.1
9.2
8.0
8.2
8.6
9.2
Avg.
Mat
(Days)
1 Yr
0.2
0.7
1.0
1.8
0.5
-423
231
34
42
Credit Quality (% Allocation)
AAA/P+
AA/AA+
Below
AA
Cash &
Call
73.6
24.2
71.7
92.2
98.8
16.0
39.8
27.7
0.1
--
-29.5
----
10.4
6.5
0.6
7.8
1.2
Floating Rate Funds
Funds that predominantly invests in debt securities with a floating rate of interest. And these debt securities peg their coupon or
interest rate payable to market driven rate such as Mibor.
Scheme Name
SBI Magnum Income Fund
UTI Floating Rate Fund
Franklin India Savings Plus
Can Robeco Savings Plus
HDFC F R I F - LTF
Returns (%)
(Simple Annualised)
AAUM **
(Rs Crs)
860.6
4064.3
417.6
225.2
1938.5
Crisil Liquid Fund Index
1Mth
3 Mths
8.8
8.5
10.4
8.7
8.5
8.0
Exp*
Ratio
(%)
6Mths
1 Yr
8.4
8.3
8.8
8.5
8.6
8.5
8.5
9.1
9.0
9.0
9.0
8.9
9.3
9.2
9.3
8.2
8.6
9.2
1.3
0.4
0.9
0.6
0.1
Avg.
Mat
(Days)
204
252
299
285
49
Credit Quality (% Allocation)
AAA/P+
AA/AA+
86.6
81.0
90.0
69.3
99.7
11.9
10.9
7.7
12.4
--
Below
AA
------
Cash &
Call
1.5
8.1
2.3
18.3
0.3
Liquid Fund
Funds investing only in short-term money market and debt instruments that mature in up to 91 days such as treasury bills, commercial
paper and certificates of deposit.
Scheme Name
BOI AXA Liquid Fund
HDFC Liquid Fund
IPru Money Market Fund
Returns (%)
(Simple Annualised)
AAUM **
(Rs Crs)
1Mth
3 Mths
Exp*
Ratio
(%)
6Mths
1 Yr
Avg.
Mat
(Days)
Credit Quality (% Allocation)
AAA/P+
AA/AA+
Below
AA
Cash &
Call
1674.4
8.3
8.5
8.6
9.0
0.1
26
93.9
--
--
17292.3
8.4
8.5
8.7
9.1
0.1
32
95.7
0.6
--
6.1
3.7
5989.1
8.4
8.5
8.7
9.1
0.1
25
83.7
--
--
16.3
SBI Magnum Insta Cash
2022.6
8.3
8.4
8.6
9.0
0.2
29
78.2
4.4
--
17.4
Reliance Liquidity Fund
5959.7
8.4
8.5
8.7
9.0
0.1
30
90.9
--
--
9.1
8.0
8.2
8.6
9.2
Crisil Liquid Fund Index
Sharekhan
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February 25, 2015
Mutual Gains
Gilt Funds
Funds which invest only in government securities of different maturities with virtually no default risk.
Scheme Name
Returns (%)
(Simple Annualised)
AAUM **
(Rs Crs)
SBI Magnum Gilt LTP
UTI Gilt Advantage Fund
Reliance G Sec Fund
IPru Gilt Fund - Inv- PF
Birla Sun Life G Sec Fund
287.8
191.7
463.0
299.4
427.1
NSE GSec Composite
Exp*
Ratio
(%)
1Mth
3 Mths
6Mths
37.5
37.7
33.0
32.7
33.0
35.7
34.2
31.5
31.5
31.5
28.9
29.3
26.0
26.6
25.9
22.5
22.9
20.6
23.1
19.8
17.7
19.5
13.9
13.0
Avg.
Mat
(Days)
1 Yr
Credit Quality (% Allocation)
AAA/P+
1.3
1.2
1.7
0.4
1.4
8158
9210
7030
7139
--
97.7
95.6
98.1
96.6
97.1
AA/AA+
Below
AA
------
Cash &
Call
------
2.3
4.4
1.9
3.4
2.9
*Exp – Expense ratio (latest available date)
** AAUM (Rs crs) – Figure represents September 2014 quarter average AUM
Methodology
We have identified the best debt-oriented schemes available in the market today based on the following 5 parameters: Avg. rolling returns
for one and two years, Sharpe ratio, Fama (net selectivity), Credit quality and Average Maturity. Credit quality-10%, Avg.Maturity-10%,
Avg.rolling returns for 1 and 2 years – 20% each, Sharpe-20% and FAMA (net selectivity)-20%.
Tax rates
Tax on distributed income (payable by the scheme) rates
Scheme Type
Individual
Equity Oriented Schemes
Domestic Companies
NRI
Nil
Nil
Nil
Money market and Liquid schemes
28.325%
25% + 10% Surcharge** + 3% Cess
33.990%
30% + 10% Surcharge** +3% Cess
28.325%
25% + 10% Surcharge** + 3% Cess
Debt schemes (other than
infrastructure debt fund)
28.325%
25% + 10% Surcharge** + 3% Cess
33.990%
30% + 10% Surcharge** + 3% Cess
28.325%
25% + 10% Surcharge** + 3% Cess
Infrastructure Debt Fund
28.325%
25% + 10% Surcharge** + 3% Cess
33.990%
30% + 10% Surcharge** + 3% Cess
5.665%
5% + 10% Surcharge** + 3% Cess
Tax Implications on Dividend received by Unit holders
Scheme Type
Individual/ HUF
Domestic Company
NRI
Equity Oriented schemes
Nil
Nil
Nil
Debt oriented schemes
Nil
Nil
Nil
Capital Gains
Long Term Capital Gains (Units Held for more than 12 months)
Scheme Type
Equity oriented schemes
Individual/ HUF$
Domestic Company @
Nil
Nil
10% without indexation or
20% with indexation
whichever is lower
10% without indexation or
20% with indexation
whichever is lower
10% without indexation or
20% with indexation
whichever is lower
Other than equity oriented
schemes (Listed) (applicable
from July 11, 2014)
20% with indexation
20% with indexation
20% with indexation
Other than equity oriented
schemes (Unlisted) (applicable
from July 11, 2014)
20% with indexation
20% with indexation
10% without indexation
Other than equity oriented
schemes (applicable on or
before July 10, 2014)
Nil
NRI$/#
Sharekhan
4
February 25, 2015
Mutual Gains
Short Term Capital Gains (Units Held for 12 months or less)
Scheme Type
Individual/ HUF$
Domestic Company @
NRI$/#
Equity oriented schemes
15%
15%
15%
Other than equity oriented schemes
30%^
30%
30%^
Tax Deduced at Source (Applicable only to NRI Investors)
Scheme Type
Short term capital gains
Long term capital gains
Equity oriented schemes
15%
Nil
Other than equity oriented schemes (Listed)
30%
20%##
Other than equity oriented schemes (Unlisted)
30%
10%
* Securities transaction tax (STT) will be deducted on equity funds at the time of redemption/ switch to the other schemes/ sale of units.
** Effective from June 1, 2013.
$ - Surcharge at the rate of 10% is proposed to be levied in case of individual/ HUF unit holders where their income exceeds Rs 1 crore.
@ - Surcharge at the rate of @ 5% is proposed to be levied for domestic corporate unit holders where the income exceeds Rs 1 crore but less than Rs. 10 crore and at the rate of
10% where income exceeds Rs. 10 crore.
# - Short term/ long term capital gain tax will be deducted at the time of redemption of units in case of NRI investors only.
## - After providing for indexation ^ Assuming the investor falls into highest tax bracket.
Category Write-up
Indian equity markets strengthened during the month with S&P BSE Sensex and CNX Nifty touching all-time highs of 29,844 and 8,997
points, respectively. A surprise rate cut by the Reserve Bank of India (RBI) outside its scheduled Monetary Policy Review and encouraging
economic data boosted markets. Hopes of further reform measures by the Government in the upcoming Union Budget contributed to the
rally. Rise in domestic equity markets led to an improvement in the MIP category, where returns rose to 18.98% (one-year, monthly rolling
returns).
The 10-year Indian benchmark bond yield fell for the fifth consecutive month mainly on the back of an unexpected rate cut by the RBI.
Continued fall in global crude oil prices and better-than-expected consumer inflation data further boosted bond prices.
The one-year rolling returns across debt fund categories witnessed an improvement, with the exception in the returns of liquid funds. The
major beneficiaries during the month were funds in the Gilt Long Term and Debt Income categories, where one-year rolling returns stood
at 16.41% and 12.50%, respectively. Returns under Debt Short Term and Ultra Short Term categories also improved to 10.35% and 8.81%,
respectively. Returns from Gilt Short-Term and Floating Rate Funds improved the lowest at 9.85% and 8.66%, respectively. However, Liquid
funds remained slightly under pressure as returns eased to an annualized 8.24%.
Risk Reward Graph
Sharekhan
5
February 25, 2015
Mutual Gains
Methodology
The bubble diagram gives you a snapshot of how the mutual funds have performed on the risk – return parameter in the past. We have used
bubble analysis method to measure their performance on two parameters i.e. Average rolling returns and Standard deviation. For all
funds, we have considered one month rolling and periodic frequency for the period of one year, as on January 31, 2015.
Forthcoming NFOs
Fund House
Scheme Name
Open Date
Close Date
Structure
Nature
Religare Invesco Fixed Maturity Plan Series 25- Plan C - (1148 Days)
24-Feb-15
02-Mar-15
Close Ended
Fixed Maturity Plan
Birla Sun Life Fixed Term Plan Series MJ (1099 Days)
02-Mar-15
02-Mar-15
Close Ended
Fixed Maturity Plan
ICICI Prudential Mutual Fund
ICICI Prudential FMP - Series 76 1140 Days Plan N - Regular Plan (G)
24-Feb-15
04-Mar-15
Close Ended
Fixed Maturity Plan
ICICI Prudential Mutual Fund
ICICI Prudential FMP - Series 76 - 1142 Days
Plan M - Regular Plan (G)
19-Feb-15
25-Feb-15
Close Ended
Fixed Maturity Plan
Deutsche Mutual Fund
DWS Hybrid Fixed Term Fund Series 35
18-Feb-15
04-Mar-15
Close Ended
Fixed Maturity Plan
Religare Invesco Mutual Fund
Religare Invesco Fixed Maturity Plan Sr 25 - Plan C (1148 D) Regular (G)
24-Feb-15
02-Mar-15
Close Ended
Fixed Maturity Plan
Religare Invesco Mutual Fund
Birla Sun Life Mutual Fund
Disclaimer
Nothing in this report constitutes investment advice or tax advice in any form and these products may or may not be suitable for you. Investors should make independent judgment taking into account specific investment objectives,
financial situations and needs before taking any investment decision. Mutual fund investments are subject to market risk. Please read the offer document carefully before investing. Past performance may or may not be sustained in the
future.
This document has been prepared by Sharekhan Ltd. (SHAREKHAN) and is intended for use only by the person or entity to which it is addressed to. This document may contain confidential and/or privileged material and is not for any type
of circulation and any review, retransmission, or any other use is strictly prohibited. This document is subject to changes without prior notice. This document does not constitute an offer to sell or solicitation for the purchase or sale of
any financial instrument or as an official confirmation of any transaction. Though disseminated to all customers who are due to receive the same, not all customers may receive this report at the same time. SHAREKHAN will not treat
recipients as customers by virtue of their receiving this report.
The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the accuracy and completeness of the said data and hence it should not
be relied upon as such. While we would endeavour to update the information herein on a reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (“SHAREKHAN and affiliates”) are under
no obligation to update or keep the information current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. Sharekhan provides non-advisory/order execution services
for Mutual Funds. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Mutual fund investments are subject to market risk. Please read the offer
document carefully before investing. Also, Recipients of this report should also be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The user assumes the entire
risk of any use made of this information. Each recipient of this document should make such investigations as he deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this
document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. We do
not undertake to advise you as to any change of our views. Affiliates of SHAREKHAN may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or
use would be contrary to law, regulation or which would subject SHAREKHAN and affiliates to any registration or licencing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all
jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Either SHAREKHAN or its affiliates or its directors or employees/
representatives/clients or their relatives may have position(s), make market, act as principal or engage in transactions of purchase or sell of securities, from time to time or may be materially interested in any of the securities or related
securities referred to in this report and they may have used the information set forth herein before publication. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any company
mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any
kind. The analyst certifies that all of the views expressed in this document accurately reflect his or her personal views about the subject company or companies and its or their securities and do not necessarily reflect those of SHAREKHAN.
Further, no part of the analyst’s compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this document.”
Compliance Officer: Ms. Namita Amod Godbole; Tel: 022-6115000; e-mail: [email protected] • Contact: [email protected]
Sharekhan
6
February 25, 2015