Since June four fund houses have launched corporate bond funds.
Betting on a rate cut and improvement in credit ratings, four fund houses have come up with corporate bond funds which aim to capitalize on the revival in economic growth in the Indian economy.
JP Morgan announced the launch of its India Corporate Debt Opportunities Fund on September 8. The fund closes for subscription on September 17.
Nandkumar Surti, MD & CEO, JPMAM India says that the current economic reforms and improvement in credit rating in medium term is likely to bode well for corporate bond funds. “The biggest challenge always is that most investors tend to look at past returns before making an investment decision, rather than having a futuristic view. The biggest positive for debt markets unlike equity is that the Central Bank itself is focused on minimizing volatility as it directly impacts economic activity. Investors must understand that volatility is temporary in bond markets. Therefore, my suggestion to all investors is to take a slightly longer term view,” he said in a press release issued by the fund house.
Last month, Religare Invesco had come up with its corporate bond fund “The current high yields offered by corporate bonds present an attractive investment opportunity. In an improving economic environment, we expect credit upgrades outnumbering credit downgrades going forward, which was not the case 2-3 years back,” said Saurabh Nanavati, Managing Director & Chief Executive Officer, Religare Invesco Mutual Fund in an earlier press statement.
The latest one to launch a similar fund is Deutsche Mutual Fund. DWS Corporate Debt Opportunities Fund opened for subscription on September 9 and closes on September 23, 2014. This fund will invest in short and medium term corporate bonds comprising AA rated issuers. The fund will follow an accrual strategy and take opportunistic allocation to ‘A’ rated issuers as well. Suresh Soni, Managing Director & Chief Executive Officer, Deutsche Asset Management India said, “Improving business confidence and demand conditions reflect an improving corporate credit environment. DWS Corporate Debt Opportunities Fund seeks to benefit from this trend by actively identifying investment opportunities across the credit spectrum. Our experienced fixed income team, backed by our strong investment process is well placed to deliver superior returns while ensuring strict risk control. DWS Corporate Debt Opportunities Fund is an ideal investment solution for investors, seeking steady returns over the medium term from fixed income investments.”
In June, Reliance too had launched its Corporate Bond Fund. The fund collected Rs. 168 crore during the NFO period. Birla Sun Life Mutual Fund too has filed an offer document with SEBI to launch a series of corporate bond funds.
So far there were only two pure play corporate bond funds in the market. Launched in December 2011, Franklin India Corporate Bond Opportunities Fund which manages AUM of Rs. 6,224 crore has delivered 12% absolute return over a one year period. One of the oldest funds in the industry, SBI Corporate Bond Fund launched in July 2004 has delivered 10% return over a one year period, shows Value Research data.
We asked financial advisors whether it makes sense to look at these funds at this juncture.
“Overall, the debt market is trading at an attractive yield at the current juncture. The yield spreads have come down in recent past but are still attractive. Investors who have a three year time frame can look at corporate bond funds. However the exposure in these fund shouldn’t be more than 20% to 30% of your debt exposure as these funds carry credit risk. At the current juncture dynamic and income fund also look attractive if investors have three year time horizon. With inflation coming down and improvement in fiscal deficit, yields are likely to fall over medium term. Hence dynamic or income funds can yield good return over two to three year time frame,” says Nikhil Kothari of Etica Wealth Management.
Renu Pothen, Research Head, iFAST Financial too seconds Nikhil’s views. Investors can consider investing in corporate bond funds with a time horizon of three years. We are of the view that the gradual improvement in the macroeconomic fundamentals along with the prospect of RBI easing the rates will bode well for investors taking an exposure into these funds.”
