Mr. Abhishek Bisen has done BA Management, MBA Finance. He has been associated with the company since October 2006 and his key responsibilities include fund management of debt schemes. Prior to joining Kotak AMC, Abhishek was working with Securities Trading Corporation Of India Ltd. where he was looking at Sales & Trading of Fixed Income Products apart from doing Portfolio Advisory. His earlier assignments also include 2 years of merchant banking experience with a leading merchant banking firm.
Answer :
The above inflation numbers are outdated as latest CPI number for September 2023 stood at 5.02%, as compared with 6.83% in Aug 2023. Headline Inflation has trended lower primarily because of correction in vegetable prices.
Also, in its last monetary policy, RBI paused for 4th time in a row, kept the repo rate unchanged at 6.50% and maintained stance as "withdrawal of accommodation". The RBI has kept its FY24 CPI inflation forecast unchanged at 5.4% while flagging risks from food inflation. Also, the RBI has reiterated that it remains highly focused on anchoring inflation to align to its target of 4% on a durable basis and not in the range of 2-6%. But, looking at inflation expectations and recent commentary of MPC members, we don't expect another hike in interest rates. And any pivot, i.e. rate cut is likely to happen only in later part of 2024, and mostly only after the US FED decision to cut rates.
Also, in its last monetary policy, RBI paused for 4th time in a row, kept the repo rate unchanged at 6.50% and maintained stance as "withdrawal of accommodation". The RBI has kept its FY24 CPI inflation forecast unchanged at 5.4% while flagging risks from food inflation. Also, the RBI has reiterated that it remains highly focused on anchoring inflation to align to its target of 4% on a durable basis and not in the range of 2-6%. But, looking at inflation expectations and recent commentary of MPC members, we don't expect another hike in interest rates. And any pivot, i.e. rate cut is likely to happen only in later part of 2024, and mostly only after the US FED decision to cut rates.
Answer : An investor needs to mainly analyze two things before investing in a debt fund – credit and duration. The duration is chosen as per the investor's investment time horizon and interest rates scenario, while credit depends upon the risk an investor is willing to take.
Ignoring the short-term volatility, the investors should invest in debt funds which are suitable to their investment time horizon. And then should select funds as per investor's risk appetite.
Credit owned strategy gives higher accruals to the investor and hence investor looking to earn higher accruals with degree of credit risk, can look at these funds.
Ignoring the short-term volatility, the investors should invest in debt funds which are suitable to their investment time horizon. And then should select funds as per investor's risk appetite.
Credit owned strategy gives higher accruals to the investor and hence investor looking to earn higher accruals with degree of credit risk, can look at these funds.
Answer : As mentioned, Debt oriented mutual funds witnessed net inflow of Rs 61,440 crore in July and net outflow of Rs. 25,872 crore in August. The point to note here is that the large portfolio of debt funds is invested in less than 1-year category, such as overnight/ liquid/ money market / ultra-short / low duration funds. Also, the majority of the money in these category of debt funds is of institutional clients and treasury. The in and out of the funds by institutions and treasury keep happening depending on cash flow requirement of investor and other avenues of investment.
Another point to note is that in September 2023 also, debt oriented funds saw net outflows of Rs. 101,512 crore. It was also the routine quarter-end redemptions by corporates to pay their advance tax liabilities. Hence there is nothing unusual or uncommon about these redemptions.
Another point to note is that in September 2023 also, debt oriented funds saw net outflows of Rs. 101,512 crore. It was also the routine quarter-end redemptions by corporates to pay their advance tax liabilities. Hence there is nothing unusual or uncommon about these redemptions.
Answer : Apart from risk from global uncertainties, domestically things seem stable. Over the last 1 year, FED has hiked rates by ~ 225 bps and RBI by ~ 60 bps. We expect FED/RBI to stay on hold during CY 2023 and cut rates in later part of CY2024. In near term yield curve might see the upward movement, but over the next 18 months, we expect yield curve to trend lower. Hence, we prefer longer end of the yield curve and have increased duration in our actively managed duration funds and as yields may inch up further we may look to increase duration further over period of time. Investors can reduce reinvestment risk by investing in higher duration funds. Given the forward guidance and expectation of cuts is potential for capital gains over next 18m in debt products investors shall look to increase duration of the investment pirtfolio as much as they can or consider actively managed duation funds.
Answer : Portfolio construction is done by fund manager depending upon the respective scheme mandate i.e. its investment objective in terms of duration and credit risk.
There is detailed due diligence process for credit analysis for each company and each credit is subject to approval by the investment committee (IC). There are also investment committee approved limits in place for each company. The fund manager can invest in debt securities of IC approved companies only and that too within approved limits. This prevents any kind of unnecessary credit risk.
Then depending upon the scheme duration mandate, interest rate scenario/outlook domestically as well as considering impact of global interest rate scenario on domestic rates, the fund manager takes the duration call.
There is detailed due diligence process for credit analysis for each company and each credit is subject to approval by the investment committee (IC). There are also investment committee approved limits in place for each company. The fund manager can invest in debt securities of IC approved companies only and that too within approved limits. This prevents any kind of unnecessary credit risk.
Then depending upon the scheme duration mandate, interest rate scenario/outlook domestically as well as considering impact of global interest rate scenario on domestic rates, the fund manager takes the duration call.
Answer : As a fund house, we endeavor to select issuers / instruments which have low probability of any downgrade. But there can be an event-based downgrade in the medium-term horizon.
It is mitigated by various ways. One of them is diversification in the portfolio both security and sector wise, which can reduce the risk from downgrade in any particular security or negative view on any sector.
There are also certain checks and balances both internal and regulatory to manage the risk. Some of them are – there is rating-wise % of AUM of scheme can be invested in any issuer, periodic stress testing of schemes for credit risk, liquidity risk & interest rate risk, etc.
It is mitigated by various ways. One of them is diversification in the portfolio both security and sector wise, which can reduce the risk from downgrade in any particular security or negative view on any sector.
There are also certain checks and balances both internal and regulatory to manage the risk. Some of them are – there is rating-wise % of AUM of scheme can be invested in any issuer, periodic stress testing of schemes for credit risk, liquidity risk & interest rate risk, etc.