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RETAIL RESEARCH
Recent performance of the Debt Mutual Funds & the way forward
The performance of the debt mutual Funds (other than Liquid, Ultra Short Term and Short Term) has been notable in the recent periods, which benefited from
the fall in the yields of the longer tenure debt instruments on the back of favorable domestic macro economic data. For the last one year period, the top
quartile schemes from the long term debt categories such as Gilt Long Term and Income Funds posted annualized returns ranging between 13-17%.
The yields of the 10 year G sec benchmark fell significantly by 94 basis points since the 9.10% levels seen on April 07, 2014. Currently, the benchmark 10-year
security 8.40% GOI 2024 traded at 8.16% levels (as of November 12, 2014).The favorable recent domestic macro economic data (barring the IIP figures) and the
consequent increased hopes of early interest rate cut by the central bank, factored positively in the debt markets thereby resulting in a rise in the value of the
bonds.
The present situation in the domestic economy seems to be positive for the bond markets with the outcome of favorable domestic macroeconomic indicators.
Despite that, the RBI could maintain its status quo till Feb 2015 and consider easing the policy rates only after seeing the developments in all the levels like
achieving stated CPI inflation targets, improvement in credit and deposit growth, demand for financial assets, achieving appropriate real rate, etc. Emergence of
any geo political threats will further delay rate cuts.
It seems that the bond market has already discounted to rate cuts as we have seen a fall in the yields of the G sec papers across the tenures of close to 100
basis points. The yields of the 10 year G sec benchmark will likely to trade between 7.5-8% in the next 15 months period. This will help the debt schemes which
have allocated their assets considerably into longer tenure debt papers. The fall in the interest rates will appreciate the value of the bonds thereby mutual
funds giving investors a capital appreciation.
It is worth noting that any negative outcome from domestic or global fronts will impact the rate easing decision and result in MTM loss for the fresh investors.
Hence, high risk profile investors who wish to capitalize this falling interest rate opportunity can consider allocating 5-10% of their portfolio value in the Gilt LT
plans, medium term income and credit opportunities income funds and hold for 12-15 months.
In this note, we have studied the performance during the period between April 07, 2014 and till date of the categories which allocated maximum into longer
tenure debt instruments such as Government securities, Corporate debt, PSU Bonds, etc.
We have considered the categories such as Gilt Long Term, Gilt Short Term, Income Funds and Short Term Income funds.
RETAIL RESEARCH
Falling trends in the yields of 10-year security 8.40% GOI 2024 benchmark:
More than 100 bps fall in the yields of longer tenure G sec bonds:
RETAIL RESEARCH
Max, Min & Average un-annualized returns by schemes from 7 April 2014till date:
Key Takeaways:
The returns calculated during the period from April 07, 2014 to till date are considered for our study. On April 07, 2014, the yields 10 year G sec benchmark saw its last
peak and traded at 9.10% levels. The yields fell significantly by 94 basis points to 8.16% levels seeing on November 12, 2014.
Gilt Long Term category: Gilt Long Term category delivered highest returns during the period among the long term debt categories. The category posted close to
11% point to point returns during the period (in close to 7 months period). Franklin India G-Sec-LTP(G), ICICI Pru Gilt-Invest-PF-Reg and UTI Gilt Adv-LTP(G) were the top
performing schemes from the category which posted 15%, 14.3% and 13.8% point to point returns respectively (in close to 7 months period). Schemes which
maintained or increased their portfolio average maturity to more than 20 years got benefited from the fall. It can be clear from the above yields comparison chart for
various tenures wherein the yields of the dated G with more than 15 years maturity fell the most among the different maturity papers. Active call strategy also helped
to generate higher returns.
Gilt Short Term category: Likewise, schemes which maintained relatively higher portfolio average maturity rose the most in the Gilt Short Term category. The
category posted an average return of 6% point to point returns. ICICI Pru Short Term Gilt, IDFC G Sec-STP-Reg(G) and SBI Magnum Gilt-STP(G) were the top performing
schemes from the category posted 8%, 7.7% and 7% of point to point returns respectively.
Income Category: The income category posted an average return of 8.4% point to point returns. ICICI Pru Income, ICICI Pru Long Term Plan and HDFC Income Fund
were the top performing schemes from the income category posted 12.8%, 12.7% and 11.5% point to point returns respectively (in close to 7 months period). Schemes
that played active duration calls, increased their allocation into longer tenure G secs papers or holding maximum AA and below rated corporate debts have posted
relatively higher returns during the periods. Surprisingly, out of the top 5 best performing schemes, only one scheme is from Dynamic income category. Only few funds
out of 23 dynamic schemes such as HDFC High Interest Fund-Dynamic Plan(G), Sundaram Flexible-FIP(G), IIFL Dynamic Bond Fund-Reg(G), ICICI Pru Income
Opportunities Fund(G) and ICICI Pru Dynamic Bond Fund-Reg(G) posted better returns during the period.
Income schemes that maintained or increased their portfolio average maturity to more than 12 years got benefited during the period. On the other hand, schemes that
maintained lower average maturity and stay invested largely in Money market Instruments and lacking active calls failed to generate notable returns during the period.
Short Term Income funds posted above average returns over the last three to four year periods. They got benefitted from the both sides of capitalizing spiking short
term rates as well as appreciating capital by MTM gain from the medium term debt instruments. TheShort Term Income category posted 6.2% during the period. ICICI
Pru Short Term Plan-Reg(G), Escorts Short Term Debt(G) and Franklin India ST Income Plan(G) were the top performing schemes from the category delivered 7.9%, 7.7%
and 7.4% of point to point returns respectively.
To conclude, the above mentioned schemes from the different categories posted relatively higher returns during this period by taking active call strategy. It is not
necessary for these mentioned schemes to generate consistent returns in the future as well. To reiterate, Gilt LT funds are suitable only for high risk profile investors.
Investors are asked to take call while investing in these funds based on their risk appetite, time horizon and investment goals.
RETAIL RESEARCH
Top and bottom performing schemes from the Long term Debt categories
Gilt Long Term:
Average Maturity
(Yrs)
Latest
Corpus
(Rs
Crs)
3
Month
07 Apr14
To till date
1
Year
Risk
(Standard
Deviation)
(daily)
Mar-14
186
1.71
7.47
14.99
16.97
0.25
95.53
4.47
8.92
0.64
7.12
14.25
17.34
0.22
96.98
3.02
25.52
6.30
1.23
7.38
13.78
14.89
0.23
98.26
1.74
9.12
9.12
5.89
0.49
4.92
8.88
9.94
0.23
94.14
5.86
8.40
6.63
4.36
1.20
4.50
8.40
8.52
0.17
72.43
27.57
31
0.00
8.80
5.80
1.32
4.55
6.75
11.36
0.14
92.89
7.11
8.24
13.08
6.76
1.30
6.25
6.31
6.93
11.20
12.09
13.20
13.50
14.93
16.23
0.24
Expense
Ratio
(%)
Oct-14
Modified
Duration
(Yrs)
Expense
Ratio
(%)
20.23
21.23
8.99
225
15.20
21.58
171
5.90
Bottom Performers:
Birla SL Gilt Plus-Reg(G)
55
Scheme Name
Debt &
Bonds
G Sec
MMI
Cash
Top Performers:
Benchmark:
Average of Gilt - LT Category
I-Sec Sovereign Bond Index
I-Sec Li-BEX
Latest
Corpus
(Rs
Crs)
Mar-14
Oct-14
Modified
Duration
(Yrs)
117
4.73
2.63
2.10
IDFC G Sec-STP-Reg(G)
1.45
4.00
49
0.67
Birla SL G-Sec-ST(G)
Escorts Gilt(G)
Canara Rob Gilt Adv FundReg(G)
Benchmark:
Scheme Name
3
Month
07 Apr14
To till date
1 Year
Risk
(Standard
Deviation)
(daily)
0.70
3.83
8.22
10.81
0.10
89.67
10.33
2.89
0.45
3.83
7.71
12.02
0.09
61.55
33.4
5.08
2.32
1.77
0.90
3.24
6.95
10.75
0.06
50.7
49.3
0.01
0.01
0.00
0.40
1.88
4.54
7.85
0.02
100
1.55
1.03
0.00
1.50
1.85
4.59
7.14
5.99
97
2.98
0.01
0.01
0.01
1.00
1.79
4.30
7.50
0.02
100
Debt &
Bonds
G Sec
MMI
Cash
Top Performers:
ICICI Pru Short Term Gilt
Bottom Performers:
RETAIL RESEARCH
1.50
1.19
0.85
0.80
Expense
Ratio
(%)
2.79
2.41
5.92
5.46
8.90
8.94
0.48
Income Funds:
Average Maturity
(Yrs)
Latest
Corpus
(Rs
Crs)
Mar-14
Oct-14
Modified
Duration
(Yrs)
2380
14.15
14.77
7.13
92
0.48
11.56
2221
12.08
54
Scheme Name
3
Month
07thApr14
To till date
1
Year
Risk
(Standard
Deviation)
(daily)
1.80
6.51
12.75
14.86
0.20
20.43
77.29
2.28
7.04
0.35
6.49
12.69
16.91
0.22
13.31
85.21
1.49
12.84
6.86
1.88
6.29
11.50
13.95
0.17
37.89
59.2
2.9
0.24
0.23
0.21
0.15
2.35
5.28
0.02
36.96
59.2
3.85
121
5.14
7.70
6.97
1.00
2.97
4.79
0.21
86.9
12
1.08
16
0.61
3.13
0.00
2.00
2.17
4.53
7.82
0.07
12.57
13.3
25.6
48.6
4.13
6.78
4.19
1.45
4.57
8.42
11.60
0.13
4.68
9.95
13.38
Debt &
Bonds
G Sec
MMI
Cash
Top Performers:
Bottom Performers:
Benchmark:
Average of Income Category
Crisil Composite Bond Fund
Index
Latest
Corpus
(Rs
Crs)
Mar-14
2822
Scheme Name
3
Month
07 Apr14
To till date
1
Year
Risk
(Standard
Deviation)
(daily)
1.05
3.79
7.85
11.16
0.07
59.45
29.36
3.51
7.68
1.00
2.48
7.67
11.33
0.11
35.8
35.3
29
Oct-14
Modified
Duration
(Yrs)
Expense
Ratio
(%)
3.01
2.91
2.20
0.95
0.95
0.00
Debt &
Bonds
G Sec
MMI
Cash
Top Performers:
RETAIL RESEARCH
9904
1.86
2.49
2.25
1.54
3.74
7.43
11.48
0.05
93.59
0.00
3.76
4.05
Sahara Classic(G)
0.03
0.01
0.00
0.35
1.93
4.59
7.94
0.02
100
GS ST-Ret(G)
0.01
0.00
0.00
0.57
1.89
4.49
7.73
0.02
100
5.93
0.03
0.03
2.12
1.96
4.12
5.94
0.08
51.49
29.1
19.5
Benchmark:
Average of ST Income Category
1.49
1.59
1.28
1.00
2.95
Crisil STBond Fund Index
2.88
Note: Standard Deviation calculated from the daily returns calculated from 7Apr 2014 to till date.
6.18
6.25
9.81
10.34
0.05
Bottom Performers:
No active calls. Invested mostly in CBLO & very
short term papers.
No active calls. Invested mostly in CBLO & very
short term papers.
Fresh exposures in Corporate debts in Oct 2014.
Decreased exposure in MMI. Moderate active
strategy.
RETAIL RESEARCH