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THERE has been a rush among fund houses to launch income funds. Chaitanya Pande, co-head of fixed income at ICICI Prudential Mutual Fund, said in an interview with Bijoy Sankar Saikia that high interest rates, slowing inflation and the government's fiscal consolidation are making prospective bond yields look attractive and investors should try to take advantage of this situation. Excerpts: Interview | Chaitanya Pande, ICICI Prudential Mutual Fund
Fund houses have of late turned their focus on income funds? How can an investor derive the maximum out of these?
Last year saw a significant rise in interest rates. Past six months have seen a very sharp rise in yields, especially at the short end of the yield curve. High inflation, high fiscal deficits and a hawkish Reserve Bank of India have led to this.
Interest rate differentials are near all-time highs, inflation rate is coming off, fiscal consolidation is in the works and RBI is close to the end of its tightening cycle. All these tend to make the present yields look attractive and we have been recommending that investors should try to take advantage of this situation.
In what ways are debt funds better than bank fixed deposits? Bank FD rates are pretty high now.
Both investment options have their own advantages and disadvantages and investors need to evaluate which one suits them best. We believe debt funds have an edge over bank FDs due to their transparency, service standards, ease of transaction and performance.
Debt funds maintain a portfolio quality aligned to the fund's mandate that makes it ideal for risk adverse investors. We continue to believe that debt funds offer an attractive investment opportunity for investors.
There has been a serious push by mutual fund houses to wean away investors from bank FDs. How has been the response so far?
Fixed income investments consititute a significant portion of the savings pool and investors have several options.
Our objective has always been to provide an attractive avenue to investors to invest in the fixed income segment in addition to traditional investment avenues. We believe given the transparency, service standards, ease of transaction and performance, debt MFs offer good value.
What are the expectations from your newly-launched regular savings fund and how is it different from other income funds available in the market?
With this fund, we intend to introduce retail investors to debt funds as an important investment and asset allocation avenue. It can be an ideal replacement for risk-averse fixed income investors, who invested in monthly income plans last year and may now consider booking profit at the present elevated levels of the stock market.
Also, it can be a good option for those who want exposure to debt funds in the present interest rate environment, but are shying away due to the volatility and active management of income and gilt funds. ICICI Prudential Regular Savings Fund (IPRSF) is a corporate debt fund that will focus on delivering returns to investors, predominantly by way of accrual of interest from underlying securities.
Sebi has raised an alarm over the quality of papers that debt funds invest in.
At ICICI Prudential Mutual Fund, the investment objective is to optimise risk-adjusted return by investing in high credit fixed income securities, managing interest rate risk and minimising liquidity risk. We seek to neutralise credit risk by investing in high credit quality instruments, minimising liquidity risk by maintaining an asset liability match and managing interest rate risks through active asset allocation and portfolio positioning across spreads and duration buckets. We seek to achieve safety, liquidity and return (SLR) in that order of priority.
Do debt funds disproportionately invest in debt papers of realty companies?
We invest in papers from a wide spectrum of available opportunities. The credit analyst keeps a list of approved credit limits. Any new credit is first put through a rigorous and meticulous credit review process before a fundwide limit is set up.
Some of the leading names in the real estate sector, as with most other sectors, do find themselves on this list.
In addition to the credit limit for a particular company, several oth-er factors such as security, structure, spread and issuance frequency guide investment decisions.
In addition, the security selection process for each scheme is driven by the product profile, investor expectation, industry norms and an continuous effort to optimise portfolios to investor expectations.
What is your outlook on the interest rate front over the next six months? RBI has sounded a pause in its rate-hiking spree.
Interest rates seem to be at their peak at present. RBI was following a tight money policy environment to address the issue of rising inflation. However, though inflation is still above RBI's comfort level, it is expected to moderate due to the base effect, a good monsoon and the release of food grains by the government.
If inflation does not come within RBI's extended comfort zone, we expect RBI to take further steps on managing the same. Right now there exists a tight liquidity and credit growth scenario that could have had an impact on growth. Therefore, RBI has to walk a tightrope between inflation management and growth. But RBI is reaching a stage where it may have no option but to infuse liquidity either by way of a cut in the CRR or through intervention in the market.
Where do you see the rupee vis-àvis the US dollar six months from here on?
Given the long-term expectations of faster relative growth and higher real returns, it is reasonable to expect a slow but steady appreciation in the rupee in the medium to long term.
However in the short term, a high current account deficit and global risk aversion could lead to volatility.
Source :- My Digitalfc
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