Birla
Sun Life Mutual Fund today announced the launch of its open-ended income scheme
called Birla Sun Life Corporate Bond Fund which will invest in corporate debt securities, said a
press release issued by the company. The NFO opened for subscription on March
30 and closes on April 13.
A. Balasubramanian, CEO, Birla Sun Life Mutual Fund said,
“As interest rates ease off, it holds merit for investors to relook, and
rebalance their debt portfolio by increasing allocation to accrual funds. The
fund will not only help investors seeking stability of returns to take
advantage of the current economic reforms, but will also help them benefit from
expected fall in interest rates in market over the next few quarters.”
Birla
Sun Life Corporate Bond Fund aims to generate returns by predominantly
investing in a portfolio of corporate debt securities with short to medium term
maturities across the credit spectrum. The scheme will not invest in government
securities and state developmental loans but may invest in money market
instruments including treasury bills, repo and reverse repos and CBLO within
the limits mentioned in asset allocation pattern, said the release.
The
scheme will be managed in a way that the maximum duration of the portfolio is
capped at four years. The scheme would seek opportunities across the credit
curve and would endeavor to take benefit from mispriced credit opportunities. Benchmarked
against CRISIL AA Bond Fund Index, the scheme will be managed by Maneesh Dangi.
We
asked advisors if it is worth investing in corporate bond funds at this
juncture.
Vidya
Bala, Head, Mutual Funds Research, Fundsindia says “Not all corporate bond
funds are same as each scheme’s underlying portfolio and strategy differs.
Corporate bond funds typically invest in AA paper which offer higher returns as
compared to AAA rated papers. AA rated paper doesn’t mean that the company is
bad. Once the earnings potential improve
and there is rerating of AA paper, the yields go up. Thus, corporate bond funds
benefit from rerating. Investors with two year time horizon can invest in
income and dynamic bond funds while those with three to five years’ timeframe
can look at corporate bond funds.”
Many
fund houses have launched corporate bond funds in the recent past. Franklin
India Corporate Bond Opportunities Fund, Kotak Corporate Bond Fund - Standard
Plan and SBI Corporate Bond Fund have delivered 12%, 13% and 11% absolute
return over a one year period, respectively, shows Value Research data.
Nikhil
Kothari of Etica Wealth Management says that only investors who have three to
four years’ time horizon should invest in corporate bond funds. “These funds
can give good returns if there is an improvement in economy. These funds
typically invest in AA paper which yield higher returns. However, only 20% of
investors investible corpus should go in such funds as these funds carry credit
risk.”
Nikhil
says that investors should look at the exit load of corporate bond funds to get
an indication of how long they should remain invested. “Exit loads of corporate
bond funds indicate how long investors should remain invested in order to
benefit from such funds,” he adds.
Renu Pothen, Research Head, iFAST
Financial India says that these funds can be a better alternative to fixed deposits. “This
year, we have taken an exposure into corporate bond funds for our conservative,
moderately conservative and balanced investors. For investors with a time
horizon of 3 years, we believe that an exposure into this instrument would be
an ideal alternative to fixed deposits.”