The fund has outperformed the benchmark, that is, India Fund Short Duration, over the one, three, five and 10-year periods
Fund manager Deepak Agrawal has a flair for managing credit strategies, which has been exhibited in his 15-plus-year stint with Kotak AMC. Agrawal is well supported by an eight-member investment team that includes the head of fixed income, Lakshmi Iyer.
Investment strategy
When adopting an accrual strategy, the manager typically looks for corporate bonds that provide attractive yields and which, in his view, offer adequate comfort on the credit quality of the instruments.
The process is research-based with an emphasis on safety and liquidity. The fund is more focused towards taking small duration bets and invests primarily in high-quality credits. The manager seeks to identify duration bets through macroeconomic factors, by incorporating the views of internal and external economists. Credit analysis is divided into banking, non-banking financial companies, and manufacturing debt, and they are further demarcated into three buckets based on the strength of the business, management, and corporate governance standards.
The team also leverages on the expertise of the equity team at Kotak Mutual Fund and Kotak Bank. The qualitative assessment is then followed by rigorous quantitative analysis wherein financial ratios such as leverage, coverage, and solvency ratios are considered. While constructing the portfolio, the manager follows a proprietary model to determine the exposure in each issuer. The robust risk-monitoring team ensures that the limits are being adhered to. The presence of an experienced investment committee is helpful and makes the investment process more holistic. Hence, this gives the team a strong hand at credit and duration management and an edge over peers.
Trailing returns
The fund has outperformed the benchmark over the one, three, five and 10-year periods.
Portfolio composition
The fund stands out for its conservative approach as it aims to keep 75%-80% of assets in AAA corporate bonds. The manager tries to maintain portfolio duration between one and three years, and has adhered strictly to the investment mandate.
Some of the companies the fund has invested in include Mahindra and Mahindra Finance, Indiabulls Housing Finance, SIDBI, L&T Infrastructure Finance, HDFC, Nabha Power Limited, Indusind Bank, Power Finance Corporation, and Aditya Birla Finance.
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