KOTAK BOND SHORT TERM : AN ALTERNATE TO EARN LIQUID PLUS + RETURNS WITH 6 MONTHS HORIZON
I had given an investment call in AIG Short Term Plan with higher accrual and higher duration of approx. 2.3 years with at least six month investment horizon. The said strategy will work well for reasons mentioned in that note.
However, for those who still wish to play conservative & defensive strategy (without taking duration call or MTM) call & still earn about 100-125 bps higher than liquid plus returns over six months, KOTAK BOND SHORT TERM PLAN is ideally suited for them.
The said scheme plays on high accrual strategy rather than interest rate call or duration calls. Also, it plays on run down strategy due to the steepness of the yield curve between 12 & 18 months. This segment (especially in NBFC papers) has a spread of almost 75-125 bps & on corporate bonds for the same period a spread of 50-55 bps.
As mentioned in my note on AIG Short Term Plan, the said run down/roll down strategy can cushion an investor from any untoward shocks from , say, rate hikes as the accrual would still be high on say 18 month paper (NBFC would be quoting anywhere between 7.25-7.50% for 18 months); six months down the line the same paper would be a 12 month paper with high accrual of 7.50%; whereas at that time 12 month papers should (all things remaining same) be quoting anywhere between 6.25-6.50% . This can cushion an investor (if there happens to be a rate hike in between).
Also, the Fund Manager is getting good value by investing in good State Development Loans of 18 months at higher accruals.
Hence, as can be seen from above, it is very defensive strategy which is capable of earning at least 100-125 bps higher than liquid plus with much lower volatility by creating an average maturity of not more than 1 year.
Rolling return analysis since April 1’2009 for 3 & 6 months will prove that the said scheme is managed conservatively (without going negative both for 3 & 6 month rolling returns) & has consistently given liquid plus plus returns:
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6 MONTH ROLLING RETURNS AS ON DECEMBER 17’2009 |
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MIN |
4.41% |
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MAX |
22.73% |
|
AVG |
12.09% |
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STD DEV |
5.70% |
|
RANKING BASED ON AVG PERFORMANCE |
3RD OUT OF 13 SCHEMES |
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|
|
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3 MONTH ROLLING RETURNS AS ON DECEMBER 17’2009 |
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|
MIN |
2.60% |
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MAX |
17.75% |
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AVG |
8.85% |
|
RANKING BASED ON AVG PEFORMANCE |
4TH OUT OF 13 SCHEMES |
Hence, as can be seen from above, with at least a six month view, the said scheme has either given at least liquid plus returns or higher.
Other Scheme attributes are as follows:
| Current Corpus | Approx. Rs.725 crs |
| Average Maturity | 1 year |
| Gross Yield | approx.6.05-6.10% |
| MTM | 43% of the portfolio with six months or above papers |
| Exit Load | 0.50% if exit done before six months from the date of investment |
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PORTFOLIO BREAK UP |
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|
14-18 MTHS |
20% |
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2 YEARS |
>11% |
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CASH |
14% |
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1 YEAR |
<55% |
Over & above the strategy mentioned above, the Fund Manager will take some trading calls upto 5-10% of the portfolio by trading in short term GILTs.
I would strongly recommend investors to have some allocation in this scheme with at least six month plus investment horizon a) with a view to earn liquid plus plus returns & b) reduce overall volatility to the entire portfolio.
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