INTERESTING PLAY IN 1-3 YEAR BUCKET
A very interesting story is likely to unfold in 1-3 year segment on the yield curve. Most of the market participants are in consensus about a downward bias on the yields of various maturities based on various factors which I have enumerated in my last note on AXIS Constant Maturity Scheme. I have given reasons as to why going forward based on both fundamental factors & RBI intervention, yields will take a southward journey.
Consider the following figures to understand the full impact of what I am about to enumerate:
| 10 Year Benchmark Yield in 14 January 2010 |
7.66% |
| 10 Year Benchmark Yield in 20 January 2012 |
8.14% |
| Difference |
048 bps |
| 1 Year CD Yield on 14 January 2010 |
6.25% |
| 1 Year CD Yield on 18 January 2012 |
9.98% |
| Difference |
373 bps |
| Interest Rate hikes between Jan 2010 & Jan 2012 |
375 bps |
| CRR Rate Hike from |
100 bps |
| Inflation April 2010 |
10.88% |
| Inflation Dec 2011 |
7.47% |
(SOURCE: RELIANCE MUTUAL FUND)
Hence, as can be observed from above, there has been a major impact on the short end of the yield curve (almost 373 bps) v/s long end of the yield curve (only 48 bps) inspite of the fact that RBI raised rates by almost 375 bps during that period. This can be partly attributed to liquidity tightness which is being witnessed over the past year or so due to various RBI actions & initiatives including CRR hike by 100 bps & partly due to FIIs pulling out of emerging markets.
All this was done to contain inflation which continued to hover above 9% levels over this period. All the efforts of RBI along with impact of base effect has brought inflation (food inflation in fact has gone negative) under 8% levels (currently 7.47%).
Hence, as mentioned above, now the general consensus is that RBI will focus on growth (which has come off significantly due to rising interest rates and other factors like global meltdown, etc) rather than inflation & announce measures which will help boosting growth once again. Some of the actions in their order of preference would be conducting OMOs to infuse liquidity (which RBI has already started doing), CRR cut & then interest rate cuts.
All the above will help in infusing liquidity & as is logical, this will impact positively the short end of the curve which was under pressure over last 2 years or so due to liquidity tightness. Also, the fact that 1 year segment had gone up by almost 300-400 bps (v/s only 50 bps on long end); this segment is very nicely poised to compress at a faster pace with RBI’s expected intervention going forward & make the yield curve steeper once again. Though, this will help compression at long end as well, the same might not be as much in terms of it’s impact as it should impact the short to medium term securities.
Hence, I would strongly recommend to invest in those short term plans which have an average maturity ranging from 1 to 3 years & which can capture the above story well. Some of these schemes which have already captured this story or are likely to capture the same are as follows:
|
Scheme Name |
AUM |
YTM |
Avg Maturity |
Current Exit Loads |
| Axis Short Term Fund – IP |
218 Cr |
9.80 |
2.01 Years |
0.25% if units are redeemed/switched out within 1 month from the date of allotment |
| Birla Sun Life Dynamic Bond Fund – Ret* |
3593 Cr |
10.05 |
2.98 Years |
If redeemed/switched bet. 0 Days to 180 Days; Exit load is 0.5%. If redeemed/switched bet. 180 Days to 270 Days; Exit load is 0.25%. |
| DSP BlackRock Short Term Fund |
752 Cr |
1.45 Years |
If redeemed/switched bet. 0 Months to 6 Months; Exit load is 0.5%. |
|
| DWS Short Maturity Fund – IP |
740 Cr |
10.21 |
1.19 Years |
If redeemed/switched bet. 0 Months to 5 Months; Exit load is 0.75%. |
| Kotak Bond Short Term Plan |
945 Cr |
9.80 |
1.41 Years |
If redeemed/switched bet. 0 Days to 90 Days; Exit load is 0.5%. |
| Pramerica Credit Opportunities Fund |
63 Cr |
11.18 |
274 Days |
If redeemed/switched bet. 0 Days to 365 Days; Exit load is 2%. |
108 Cr |
9.96 |
1243 Days |
|
|
| Pramerica Short Term Income Fund |
203 Cr |
10.52 |
267 Days |
If redeemed/switched bet. 0 Days to 90 Days; Exit load is 0.5%. |
| Pramerica Treasury Advantage Fund |
81 Cr |
10.81 |
252 Days |
If redeemed/switched bet. 0 Days to 365 Days; Exit load is 1%. |
| Reliance Short Term Fund |
758 Cr |
9.35 |
2.09 Years |
Exit Load is 0%. |
| TempletonIndiaCorporate Bond Opportunities |
345 Cr |
10.71 |
2.27 Years |
If redeemed/switched bet. 0 Months to 12 Months; Exit load is 3%. If redeemed/switched bet. 12 Months to 24 Months; Exit load is 2%. If redeemed/switched bet. 24 Months to 30 Months; Exit load is 1%. |
| TempletonIndiaIncome Opportunities Fund |
3431 Cr |
10.61 |
1.20 Years |
If redeemed/switched bet. 0 Months to 6 Months; Exit load is 3%. If redeemed/switched bet. 6 Months to 12 Months; Exit load is 2%. If redeemed/switched bet. 12 Months to 18 Months; Exit load is 1%. |
| TempletonIndiaSTIP – IP |
4673 Cr |
10.24 |
0.87 Years |
If redeemed/switched bet. 0 Months to 9 Months; Exit load is 0.5%. |
| * As on 30 Nov 2011 / Others – As on 30 Dec 2011 | ||||
Update: “Pramerica Dynamic Fund” details were inadvertently published instead of “Pramerica Dynamic Bond Fund”. The NFO closed on 11 January 2012.
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