GOING FORWARD SHORT TERM PLANS – WHICH ONES? AND WHY?
With the possible scenario of further rate hikes in June/July, I would recommend a more defensive portfolio of creation of Short Term Plans as mentioned below & for the reasons mentioned. I would advise the investors to refrain from taking interest rate calls for some more time as direction of RBI is clear on increasing benchmark rates & suck out excess liquidity in the back drop of rising inflation numbers:
- Axis Short Term Fund – IP
I had published a note on April 15’2010 on “PROMISES DELIVERED” by AXIS STP. Pre policy they had booked profit on 35% of the total portfolio held in CDs & hence the break up then was 35% cash/35% 1 year CD & 30% in 2-3 year AAA Corporate Bonds.
After booking profits, just before the policy, the Fund Manager once again found value in 1 year CD at 6.15-6.20 levels & hence increased the CD portfolio back to 70%. Current portfolio break up is 70% in Dec & March CDs (average yield captured is 6.40 to 6.50% – which is currently quoting between 5.80 to 5.90%) & 30% in MTM 2-3 year AAA Corporate Bonds with higher carry. Though there is good compression in the said bond portfolio, the same gets reflected on day to day basis due to MTM. However, the bigger story is when they will book profit out of their CD portfolio. Even if they don’t book profit, anyone investing now & holding the same beyond July 1’2010 when new guidelines come into effect of doing MTM on any paper beyond 90 days, the said scheme will give handsome gains post that date (if not already sold & booked profit before that).
Also, the said portfolio with 70% in accrual (till July 01’2010) will cushion the investors from any further rate hikes; which are likely by June end.
| Exit Load | NIL |
| Dividend options | Regular (Declared on every Monday) |
| Monthly (Declared on 25th of the month) |
- Templeton India Short Term Income Fund
I have been recommending investment in the said scheme for a very long time. Across all times, the said scheme has beaten the benchmark & generated positive returns over 3 to 6 month investment horizon. It has become more like a “PRODUCT FOR ALL SEASONS”; wherein the investor does not need to bother timing of their investments or disinvestments. The Fund Manager has only taken right mix of Duration/Credit/High accrual calls from time to time & generated alpha in their scheme.
The said scheme still maintains their time tested strategy of lower average maturity & high accrual through exposure to good quality PTCs & Corporate bonds. March end portfolio had following attributes:
| Gross Yield |
6.93%
|
| Average Maturity |
1.03 years
|
| Exposure to PTCs |
23%
|
| Exposure to CDs/Corporate Bonds |
72%
|
| Cash |
5%
|
| Exit Load | 0.50% if exit made within 6 months of investment date |
| Dividend options | Weekly (Declared on every Friday) |
| Monthly (Declared on last Business Day of the month) |
- Canara Robeco Short Term Fund – IP
Currently the gross yield is at 7-7.25% with 0.6 years average maturity. As the entire portfolio of CDs and short term corporate bonds which is invested with higher carry, the Fund Manager might not disturb the said portfolio for short term gains. He constantly does 10-15% in G sec trading which can create alpha over and above higher carry. Only once he starts getting more and more fresh inflows, will this carry yield start getting diluted. Till then this portfolio should do well over 6 month’s horizon.
| Exit Load | 0.25% if exit made within one month of investment date |
| Dividend options | Weekly (Declared on every Wednesday) |
| Monthly (Declared on last Friday of the month) |
- JPMorgan India Short Term Income Fund
J P Morgan is sitting on almost 50% in 6 month CDs which has compressed by more than 100-110 bps. Since these are 6 month CDs, at some point in near future, the Fund Manager will have to start booking profits otherwise due to roll down effect he will be left with no gains in the portfolio with even lower carry on the portfolio. He is betting on 5 year G Secs also in the said portfolio which according to him should do well. One can look to invest in this scheme with 3-6 month view. Good on in-built profit.
| Exit Load | 0.15% if exit made within 15 days of investment date |
| Dividend options | Weekly (Declared on every Tuesday) |
| Fortnightly (Declared on 14th and 18th of the month) | |
| Monthly (Declared on 25th of the month) |
- Kotak Bond Short Term Plan
Kotak Bond STP plays on high accrual and low duration & has consistently generated 100-150 bps higher than Liquid Plus. As you know, post July 01’2010, Liquid Plus schemes will become redundant; schemes like Kotak Bond STP should be good alternative to that.
| Exit Load | 0.50% if exit made within 182 days of investment date |
| Dividend options | Monthly (Declared on 12th of the month) |
|
Scheme Name |
1 Month |
3 Months |
6 Months |
|
Axis Short Term Fund – IP |
9.32 |
5.70 |
|
|
Templeton India STIP – IP |
10.54 |
7.80 |
8.87 |
|
Canara Robeco Short Term Fund – IP |
6.69 |
5.35 |
5.18 |
|
JPMorgan India Short Term Income Fund |
5.96 |
|
|
|
Kotak Bond Short Term Plan |
8.67 |
6.55 |
6.64 |
Comments
As the bond yields to stay soft on perceived dovish stance of RBI; improving sentiments with 3G auction and MET forecast of normal monsoons, what is your view on the following ST Fund; which have given comparatively better returns in the recent past:
1. Reliance ST Fund
2. IDFC SSIF – ST
3. HDFC Hi-Interest ST
4. ICICI Pru ST
Leave a Comment