What is it about?
Templeton India Corporate Bond Opportunities Fund (TCB) is an open-ended bond fund that will invest in corporate bonds. The average maturity of this fund will not exceed three years. Since TCB will focus on corporate bonds, it will not invest in government securities (G-secs) as well as public sector companies’ bonds. While it doesn’t find the yields of public sector firms attractive at present, it also feels that G-sec yields will take time to come down. While Franklin Templeton Asset Management (India) Pvt. Ltd already has three medium- to long-term bond funds that invest across corporate bonds and G-secs, it aims to focus purely on corporate bonds as far as TCB is concerned.
At present, the yields on three-year corporate bonds are in the range of 9.40-10.5%. While public sector company bonds offer yields at the lower end of this bracket, private sector firms and non-banking finance companies currently offer yields at the higher yield; TCB aims to focus on the higher end. It seems unlikely that the corporate bonds would continue to give such high spreads (difference between the yields offered by a corporate bond compared with a G-sec of similar maturity) as a slowdown in growth is expected or liquidity starts to ease. TCB aims to take advantage of the reduction of these spreads as and when they start to compress. When yields fall, prices of debt securities rise. The other benefit is that the fund is aimed at retail investors and has imposed a high exit load to dissuade investors from exiting early. There is a cap of Rs 5 crore per application per day.
While high exit loads dissuade early withdrawals and protect the interests of those who stay behind, it also impacts genuine withdrawals if the fund underperforms, even if on account of unexpected events in the economy.
Mint Money take
TCB looks promising for aggressive investors who wish to capitalize on high yields offered by corporate bonds, especially those from the private sector. The fund house also comes with a good track record. Mind the exit loads though. Also, if the fund performs well in the near term and attracts big inflows in the interim, it remains to be seen how it will manage such inflows, at what yields it may deploy them and whether or not that can impact the fund’s returns. Assuming your time horizon is about three years, conservative investors may opt for three-year fixed maturity plans (FMP) and stay invested. But if you wish to take some additional risk for a similar tenure—since TCB will actively manage its portfolio unlike FMPs—TCB is a decent alternative.