What is your outlook on the debt market?
We expect bond markets to remain largely in current range in near term. In H2FY19, as projected by RBI, if headline inflation slows down and oil prices also come down from current high levels, interest rates may ease somewhat.
Equity markets are on a roll and retail investors are lapping up equity funds. In this scenario, how do you see the demand for debt fund from retail investors? What should distributors tell their clients?
Demand for debt funds is not primarily driven by momentum or lack of it in equity or other such asset classes. Investors should ideally allocate investments in line with risk profiling and risk preference, in consultation with advisors. Debt always is an integral part of any reasonably crafted portfolio, though at the margin, strong momentum in any one section of market can trigger some minor deviations. Issues of real concern today are negative/poor returns in other competing much preferred options such as gold and property. The return in many of these cases now is negative for over 5 years, for example in case of gold. With bank FDs offering very poor compensation for inflation in recent times and with recent series of frauds/setbacks in banking sector, investors in our view are just about beginning to open up to market related products. In such a situation debt has emerged as a strong, perhaps the best alternative. One will perhaps agree that to pitch debt against equity is a fairly narrow and misguided approach. There is no conflict but on the other hand a huge complementarity.
Investors and even a few distributors find debt funds more complicated than equity funds. What do you think needs to be done in this respect?
SEBI, AMFI and mutual fund houses are taking huge efforts to educate the investors through various programs. Awareness has increased. Recent guidelines on categorization of schemes will further bring clarity. And finally, it may not necessarily be the complexity but lack of adequate interest and effort.
Coming to dynamic bond funds, these funds are supposed to adjust according to the market scenario and deliver better returns. We see some dynamic bond funds have even failed to match up with the returns from liquid funds. What are the reasons behind it?
Firstly, liquid fund and dynamic fund are not comparable as the approach and strategy for managing these funds is completely different. That may not be the correct comparison. It is true that recently dynamic funds returns have been disappointing but against what? In most cases, in the long run, this category has given reasonable returns but investors lost patience mid- way before the market conditions improved. It is difficult to comment though on individual cases where investors may have felt disappointed for reasons not known to us, including mis-selling, as the feedback comes, at times.
This budget has laid emphasis on deepening of the corporate bond by reducing the investment grade. How do you see this development?
Indian bond market is at a developing stage and this is a positive step towards deepening the corporate bond markets as this is likely to improve the liquidity in this segment making it easy to invest and this would also benefit the corporates as it would reduce their dependence on bank lending.
The RBI in its recent policy meet did not change the stance or the policy rate. Where do you see the policy rate by December 2018 and why?
In the recent press release of MPC minutes, which gives greater insight of the direction by the members, shows the members are concerned about rising headline inflation, reversal in commodity prices and normalization of global monetary policies. On the other hand, they believe that the economy is still in transition stage and GST stabilization, stable oil prices and a good monsoon may be positive for the economy. GDP growth was recorded at 7.2% for Q3FY18, oil prices have come off from recent highs and La Nina conditions indicate higher chance of a normal monsoon. Therefore, RBI having already guided the market yields higher, may remain on a long pause for now.
What is the rationale behind the launch of Mirae Asset Short Term Fund?
Mirae Asset Mutual Fund aims to cater to the investment needs of the investors across categories and tenures and is still in process of building a wider range of offerings on debt side. In this context, we believe this is an appropriate time to launch our short term fund. After the recent sharp rise in yields, the bond valuations appear to be fairly reasonable having discounted the emerging negative developments. There could though, still be upside risk associated as the market data unwinds. As such, a relatively low duration fund on the front end of the curve at times of higher short term rates looks like a good proposition.
There are many short-term funds, why should investors invest in your fund?
Mirae Asset believes in a clear and focused strategy with one fund in each category. As mentioned previously we believe that it is the appropriate time to present this conservative offering to our investors where valuations look fairly reasonable, considering the risks that still remain. We believe investors should take advantage of this and stay invested to reap the maximum benefit.
