The Inflation Indexed Bond fund is the first of its kind in India.
Deutsche Asset Management India has recently announced the launch of its two open ended schemes called DWS Inflation Index Bond Fund and DWS Top Euroland Offshore Fund.
DWS Inflation Index Bond Fund is first of its kind in India meant to provide investors a hedge against inflation. As the name suggests, the scheme will predominantly invest a minimum of 70% of its corpus in Inflation Indexed Bonds (IIB) issued by the government. IIB have their coupon and principal linked to inflation as measured by Wholesale Price Index (WPI) and a tenor of 10 years. Such instruments are being issued every month since June 2013; the current outstanding issuance is Rs 6,500 crore.
Currently these bonds are available at an attractive yield of 3.62% above WPI. For instance, if WPI for FY a year is 7%, IIB will offer a coupon rate of 10.62% (7%+3.62%) in that year. Since 1970, the one year average annual WPI was 6.37% whereas average WPI for 3 and 5 years were 7.86% and 7.06%.
Sharing the rationale behind DWS IIB Fund at a press conference held in Mumbai, Suresh Soni, CEO, DWS said that the idea is to provide hedge against inflation which carry very low risk. He struck an optimistic note and said, “Globally, investors use inflation linked bonds to protect their investments against inflation. Given the persistently high inflation in India, these bonds are relevant for Indian investors and expected to perform better compared to fixed income instruments.”
On CPI linked bonds, Soni said that the government has put a cap of Rs 5 lakh on CPI linked inflation indexed bond which is a setback for investors. Also, lack of cash flows and yield of 1.5% above CPI make it less attractive. On the other hand, WPI linked bonds, if invested through MF, will provide regular cash flow, liquidity and taxation benefits. He did not expect there to be a significant difference between the returns on WPI linked IIB and CPI linked IIB over a period of time.
DWS Inflation Indexed Bond fund will be benchmarked against I-Sec Composite Index. The scheme will charge an exit load of 1.5% if redeemed within 1 year. No exit load will be charged thereafter. The minimum application amount if Rs 5000. Kumaresh Ramakrishnan and Nitish Gupta will co-manage the fund.
Also, at the press conference, Fabian Frankenberg, Senior Product Specialist for Equities, DWS highlighted the significance of DWS Top Euroland Fund and said, “Euroland fund has persistently generated alpha by outperforming its benchmark for the past couple of years. Last year, the scheme has delivered 49.91% returns compared to 42.88% of its benchmark. It is the perfect time to invest in this fund since there is a strong improvement in macro-economic data and uptick in Eurozone manufacturing Purchasing Managers Index (PMIs). Also, many stocks in Euroland are trading at attractive valuations and available at a bargain price. In 2013, the Euroland fund attracted significant investor interest and is currently close to Euro 1 billion in assets.”
Talking about the investment strategy of fund, Frankenberg said that the fund maintains a concentrated portfolio of 40-60 stocks. He informed that 30% of corpus is allocated for small and mid-cap companies. The stocks are selected on the basis of structural growth of companies, global exposure of brand, strong balance sheet and current account balance of Euroland country, he added. Euroland consists of 18 countries.
DWS Top Euroland Offshore Fund aims to generate capital appreciation from a diversified portfolio of units of overseas mutual funds. The scheme will be benchmarked against EURO STOXX 50. The minimum application amount is Rs 5000. The scheme will charge an exit load of 1% if redeemed within 12 months. No exit loads will be charged thereafter.
The NFO of DWS Inflation Index Bond Fund will open on January 16 and closes on January 27 while the NFO of DWS Top Euroland Offshore Fund will be available for subscription from January 9.
