Managing debt funds and correctly predicting risk requires skills and Alok Singh, head—fixed income and structured products, Fortis Investment Management (India) Pvt. Ltd, seems to be quite good at the job with two of his funds taking the top billing at the Morningstar Fund Awards on Monday. Edited excerpts:

What is the investment philosophy behind Fortis Money Plus Fund (FMPF)?

Balanced growth: Alok Singh of Fortis Investment Management. Abhijit Bhatlekar / Mint

In line with the overall investment philosophy of Fortis Investment Management, the scheme restricts its investment to debt instruments of investment-grade in an attempt to minimize credit risk.

How different is FMPF from others in its peer category? How differently did you manage it ?

Our investment research process involves fundamental and credit analysis of the companies and their bonds to meet our investment diversification approach.

Based on our liquidity concerns, we look for bonds with our maturity needs. We do a careful analysis of the balance sheet and history of debt repayment and business outlook in the near term.

Also See Fortis Flexi debt Fund (Regular Plan) Gr (Graphics)

Fortis Money Plus Fund (Regular Plan) Gr (Graphics)

If we are comfortable with the credit analysis, then we look at the relative merits of individual bonds and companies. After that, the size of the trade has to meet our risk and liquidity criteria. It is influenced by our buy and sell disciplines. We generally limit the holding below 5% of our assets under management.

We also try to avoid the investor concentration in the fund and it helps us in better management of the liquidity. The Fortis Money Plus Fund is also rated as AAAF by Crisil for many years now.

What kind of investor should invest in FMPF?

This fund is designed for investors who are looking for a investment options with one-three months of investment horizon, which is relatively safe, liquid and conservative to enable capital conservation. Hence, the investors who invest business surplus for a short period of time or the investors who have a need to keep assets in relatively safe and more liquid investments.

What is the investment philosophy behind Fortis Flexi Debt Fund (FFDF)?

The Fortis Flexi Debt Fund focus on taking advantage of arbitrage between corporate and government bonds and between short and medium term corporate and treasury bonds.

However, our first priority is the safety of the principal of our clients and selecting bonds that are liquid enough to buy and sell.

We pay a lot of attention to the domestic macroeconomic scenario and have views on the government’s needs of funding. The treasury bonds issuance is driven by the government needs and private sector demand is driven by their capital expense requirements. We are looking to earn additional returns by investing in safe liquid debt instruments.

How different is FFDF from others in its peer category? How differently did you manage it?

Fortis Flexi Debt is an actively managed debt scheme where the fund manager’s current view is reflected clearly via the maturity profile of the securities and the subsequent duration of the scheme. The duration of the scheme will tend to be longer if the fund manager feels that the interest rates are falling or moving down and vice-versa. When the view on interest rates is neutral, the fund manager prefers to hold a short duration portfolio, as the flexibility to realign is higher.

The objective is to generate alpha over the benchmark and the strategy is to capitalize on opportunities as they appear. During periods of low activity the fund manager keeps some portion invested in money market instruments and waits patiently till a suitable trade can be made.

What kind of investor should invest in FFDF?

We recommend this fund to the investors with the investment horizon of 9-12 months as this fund is exposed to interest rate volatility and investors have to stay invested for longer period in order to generate reasonable return to commensurate the risk.

Where do you see the 10-year yield by the end of the calendar year?

We expect 10-year to be between 7.75% and 8.25% by end of the calendar year, provided there is no inflationary pressure and government manages to stick to its borrowing requirement already envisaged in the Budget.

Given the tax collection shortfalls, do you think the government will stick to its borrowing programme?

This is one of the risk which bond market will be exposed to in medium-term, though it is bit difficult to predict the actual shortfall at this stage as there are many variable like monsoon which can swing things.

How much do you see the Reserve Bank of India (RBI) hiking policy rates this year? What is your outlook on the bond market for the next fiscal?

We expect RBI to hike policy rates by 125-150 basis points in this calendar year. The bond market is expected to be volatile as large market borrowing is coupled with a hawkish RBI stance to control inflationary expectations.

Graphics by Yogesh Kumar / Mint