Kotak Bond Regular Fund is an open ended income fund that holds a diversified bond portfolio consisting of different fixed income securities.
Manit Goyal
Kotak Bond Regular Fund is an open ended income fund that holds a diversified bond portfolio consisting of different fixed income securities. It is benchmarked against the Crisil Composite Bond Index. The scheme was launched on 29 November 1999.
The asset allocation strategy for the fund is aggressive, with investments in securities of more than one year maturity accounting for around 90% of the portfolio.
The fund managers (Ritesh Jain and Imran Sayed) have found aggressive stance difficult to pursue. The debt markets have been in turmoil because of rising interest rates and increased foreign borrowings by Indian corporate has left lesser investment options for the fund managers.
In the last two years the fund has constantly seen changes in its portfolio composition, asset allocation, credit quality and other portfolio parameters. The average maturity for the fund, which has had a mean of around 3 years, has fluctuated from a high of 12 years to a low of 0.67 years. Similarly, the allocation to money market instruments has fluctuated a lot — these instruments on average accounted for 33% of the total corpus in the last two years. Even the credit profile has seen frequent changes. However, most of these changes have been in the highest investment grade securities, thereby ensuring minimal credit risk for investors.
Though the changes in the fund’s portfolio parameters in the last two years look scary, the strategy has been useful given the market conditions. The fund would have lost a lot of money on a buy and hold strategy.
The benefits of such a strategy are reflected in the scheme’s returns. The fund, in comparison with the benchmark’s one-year returns of around 5.76%, has generated around 8.87%. The peer group average return during the period was 6.37%.
Even a comparison with other debt market benchmarks shows the Kotak Bond Regular Fund in good light. For example, the medium term bond index I-Sec Mi-Bex, which has similar maturity profile as Kotak Bond Regular, has generated one-year returns of around 7.05%.
Income funds haven’t had the best of times in the last three years and many of these have seen complete erosion of their assets under management. Adverse factors like rising interest rates and active stock markets have kept both the issuers and investors out of the fixed income securities market.
This year has been slightly better for the fixed income market as softening of global interest rates and structural curbs on foreign borrowings has brought back some activity in the market.
By arrangement with mutualfundsindia.com, a unit of Icra Online
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