BackMint50: What’s in
Here are the 5 schemes that have made it into the list
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JP MORGAN SHORT-TERM BOND FUND
Managing short-term bond funds is tricky. With returns between various schemes in this basket roughly between 7% and 10%, on an average, your fund manager has to balance the risks she takes and the returns that she can generate. And here’s where JP Morgan Short-Term Bond (JSTB) fund scores. Launched in March 2010, JSTB comes with a formidable track record of maximizing returns with minimal risks. “The fund caters to the more risk-averse investor, who looks for a sort of assured return. The attempt is to graduate the fixed maturity plan type of investor, but also protect her downside risk," said Namdev Chougule, fund manager and head of fixed income, JP Morgan Asset Management (India) Ltd.
JSTB invests up to 65% of its portfolio in securities that mature up to a year. The rest is invested in corporate bonds and government securities (G-secs). Despite a small size, the scheme consciously has a low expense ratio of 1.10%. It doesn’t invest more than 10% in G-secs. “G-secs are volatile. We want to have more of an accrual strategy (one that gives regular returns) than a duration strategy (one that aims to get returns out of interest rate volatility)," said Chougule. His timely exit from G-secs in June 2013 helped the fund—debt markets went down when the Reserve Bank of India (RBI) suddenly hiked interest rates.
TATA SHORT-TERM BOND FUND
Yet another short-term bond fund to enter Mint50. Tata Short-Term Bond Fund (TSBF) also validates our belief in the turnaround that has happened in Tata Asset Management Co. Ltd. Its new fund manager is Akhil Mittal, who used to manage Canara Robeco Short-Term Income Fund, which was once a part of Mint50. TSBF follows an accrual strategy as opposed to low credit-rated scrips or those that come with a higher duration. It invests in G-secs, but only as a tactical move. It doesn’t invest more than 10% in G-secs. It has increased its allocation to corporate bonds to about 59% on average this year compared with about 53% in 2013. Mittal, who prefers to actively manage his portfolio, said he is not expecting interest rates to come down any time soon. “We’ll come to know about the food inflation scene only in November-December. Global crude prices are still uncertain because of the West Asia and Ukraine crises. RBI would like to see further fiscal consolidation from the government," he said. The fund’s corpus has more than doubled since the start of this year and, as Mittal claims, added more retail investors.
FRANKLIN INDIA MONTHLY INCOME PLAN
One of the unique strategies of Franklin Templeton Asset Management (India) Pvt. Ltd’s fixed income management is their inclination towards corporate bonds. These are instruments that mature beyond a year and are, therefore, riskier than those that mature within a year, such as certificates of deposit (CDs) and commercial papers (CPs). But Templeton has, for long, proved its mettle in researching such companies to ensure that despite investing in low-rated scrips, it retains the quality of portfolio by investing in sound and well-managed companies. This is the reason why we have the fund house’s short-term bond fund in Mint50 already. And that’s also the reason why we are now including Franklin India Monthly Income Plan (FMIP). As the economy improves and more companies start to borrow, well-managed companies with a low credit rating will benefit from credit rating upgrades as their sales and profitability improve. In July, FMIP invested heavily in G-secs. “Our strategy is purely accrual in nature. When the macroeconomic scene was not in favour, we had a high accrual and low duration strategy to maximize returns and minimize risks. But now that the economy is picking up, we have slightly increased our fund’s duration as we move towards a period where yields would come down," said Santosh Kamath, managing director-fixed income funds, Franklin Templeton Asset Management. It can invest up to 25% of its corpus in equities. Its equity allocation has moved up to about 21% now and it is managed along the lines of Franklin India Prima Plus, another scheme from the fund house in Mint50.
TATA BALANCED FUND
Tata Balanced Fund (TBF) has been one of the most consistent performers in the category. It has consistently featured in the top quintiles across various time periods on a rolling return basis (a series of three-year returns taken at the end of every quarter). Fund manager Atul Bhole said he doesn’t mind buying “slightly expensive" companies even if he has to pay a higher price, but the quality has to be good. He doesn’t like to follow a value investing style for this fund, and prefers growth style of investing.
Though the scheme’s portfolio tilts towards large-sized companies, Bhole increased the allocation towards small-sized companies this year. “Many of these small-cap companies have appreciated since we bought them," he added.
Investments in companies such as Bharat Forge Ltd, Kaveri Seeds Co. Ltd and Eicher Motors Ltd have worked well for the fund. At present, TBF has high exposures to sectors such as cement and auto. The fund’s top three sectors are banking (15%), software (11%) and finance (10%). After years of volatile and inconsistent performance, Tata Asset Management Co. Ltd has taken steps in the past two years to put its house in order. It brought in a new chief executive officer (Arvind Sethi) in December 2012 and a new chief investment officer (Ritesh Jain) in May 2013. While the fund house has a long way to go to shed its past baggage, the revamp has started to bear fruit.
ICICI PRUDENTIAL TAX PLAN
As budget 2014 increased the tax exemption limit under section 80C to 1.5 lakh, up from 1 lakh earlier, we felt an additional tax-saving fund was in order.
After years of poor and volatile performance, ICICI Prudential Tax Plan (IPTP) has turned around its performance and has finally settled down to being a consistent performer. Fund manager Chintan Haria, who has been with the fund house since 2005, has been managing IPTP for the past three-and-a-half years. As opposed to being a mid-cap fund in its early years, the management took a conscious call to convert it into a large-cap oriented fund. Therefore, it now invests about 65% in large-sized companies and the rest in small- and mid-sized companies. “Between 2004 and 2008, our fund’s performance was like a yo-yo. In some years, it did very well, in others, it fell badly. But because it’s a tax-saving product and, therefore, attracts a lot of retail investors, we decided to reduce its volatility. It shouldn’t be that at the end of the three-year lock-in period (all tax-saving schemes have this), the scheme disappoints," said Haria.
The fund is run on an absolute return basis. Haria need not always buy and hold on to the scrips; if the scrip has shown sufficient appreciation, he prefers to book profits.
Top holdings show conviction, as the scheme has held up to 10% in its top scrip from time to time.
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