DEBT FUND ANALYSIS

DEBT FUND ANALYSIS

Sep 01, 2008 – Sep 15, 2008

DEBT FUND ANALYSIS

Debt Market OutlookDebt Market Update

Debt Portfolio Strategy

Liquid Plus Funds are still a safer bet from a short

term (3-6 months) horizon

Fixed Maturity Plans to offer better returns as the short term rates to yield higher

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Market movements

The benchmark bond price witnessed only a singular upward movement; strengthening the bulls in the market for yields to fall by 23bps

Buying pressures stemmed from banks’ requirement for the 25% SLR mandate, the Reserve Bank of India’s (RBI) buying in the G-sec segment, and

positive cues extended by USD 119/bbl resistance for crude prices; total average volumes on the NDS-OM were INR 68.61 bn

Annual inflation for the week ended August 16 shied away from the 13%-mark, backtracking 23bps to

reach 12.40% from the previous week’s 12.63%

Liquidity/borrowings:

Liquidity made bigger strides into the financial system; reflected in the consistent downward trail of

the overnight rate, with a sharp plunge on gross inflows worth INR 210 bn over August 28-29(inclusive of redemptions worth INR 100 bn)

The call rates reported a decline of 290bps , with the CBLO and call rates touching an intra-week low

of sub-5%

Liquidity scenario is likely to deteriorate from the current level. The CRR hike (applicable from August

30), which will absorb INR 80 bn from the system, and the INR 75 bn outflow from T-bill auction will

lead to added pressure, which may push the overnight rate back to 9%-levels.

Though liquidity will be tight, and the cash flow

boost received twill restrict a steep jump in borrowing under repo as it is expected to stay below the previous non-reporting week

G-sec prices, which have seen a bull run this week, are likely to run out of steam next week and may

even witness a significant pull back

DEBT FUND ANALYSIS

Recommended Debt MF Categories

Liquid Plus Funds:

These funds have favorable portfolio composition. These funds are expected to invest close to 40% on higher side and 25% on the lower side in Corporate Bonds with maturity above 1 year

These funds are able to take advantage of rise in Overnight rates and also increase the portfolio yield by taking call in high duration bonds. In the current scenario where overnight rates are expected to remain high and yields on corporate bond to ease slightly from current levels. These funds are better positioned to take advantage of both the scenarios

These funds provide an indirect bet on Short to Medium term bonds. In case of 100% investment in these bonds an investor can be subject to mark to market compulsion and any rise in rates is likely to hurt the return on investment. However, with investment in Liquid Plus Funds an investor can take advantage of spread investment strategy of these funds

These funds are treated as an income fund and are exempt from the rise in Dividend Distribution Tax. Old rate of Dividend Distribution Tax is applicable to these funds

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DEBT FUND ANALYSIS

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Recommended Schemes in Liquid Plus Funds

Liquid Plus Funds – Retail & Institutional

DWS Money Plus Fund

ICICI Prudential Flexible Income Plan

Birla Sun Life Liquid Plus Fund

Reliance Liquid Plus Fund

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DEBT FUND ANALYSIS

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DEBT FUND ANALYSIS

Recommended Debt MF Categories

Fixed Maturity Plans:

Product with various maturities

• FMPs are available with numerous maturity options –1 month, 3 months, 6 months, 1 year, 3 years and 5 years. One can invest in the relevant plan depending upon his investment horizon and the requirement of cash flows on maturity

Minimal risk

• Unlike debt funds, which are exposed to three kinds of risks viz. interest rate, credit and liquidity risk, FMPs are a better option

• FMPs are least exposed to interest rate risk as the fund manager holds the instruments till maturity getting a fixed rate of return. Thus FMP can manage to get a specific interest on these instruments and investors have a fair idea about it. This helps investors tailor their investments as per their future cash requirements

• They primarily invest in AAA, P1+ or such kind of good rated credit instruments with maturity profile of the securities in line with the maturity of the plan so there is also low credit risk with minimal liquidity risk involved

Tax Efficient Returns

• FMPs yield competitive & tax efficient returns as the tax rates on a FMP are comparatively lesser than the tax rates in other debt funds

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DEBT FUND ANALYSIS

FMPs with tenure less than 1 Year

Name of the Scheme Tenure Closing Date Min. InvestmentIndicative Yield (Pre

Tax)

Kotak FMP 6M Series 7 6 months 04-Sep-08 5,000 10.65%

HDFC FMP 90D August 2008 (Insti.) 90 Days 01-Sep-08 10,000,000 11.10%

HDFC FMP 90D August 2008 (Reg.) 90 Days 01-Sep-08 5,000 11.00%

SBI SDFS 90 Days - 29 90 Days 01-Sep-08 5,000 10.90%

ICICI FMP Series 47 - 3 Months Plan B (Insti.) 3 months 01-Sep-08 10,000,000 11.05%

ICICI FMP Series 47 - 3 Months Plan B (Reg.) 3 months 01-Sep-08 5,000 10.75%

FMPs with tenure more than 1 Year

Name of the Scheme Tenure Closing Date Min. InvestmentIndicative Yield (Pre

Tax)

Reliance Fixed Horizon Fund - IX - Series 6 (Insti.) 19 months 9-Sep-08 10,000,000 11.50%

Reliance Fixed Horizon Fund - IX - Series 6 (Reg.) 19 months 9-Sep-08 5,000 11.00%

ING Yearly FMP 366 - Series A (Insti.) 366 Days 8-Sep-08 500,000 11.50%

ING Yearly FMP 366 - Series A (Reg.) 366 Days 8-Sep-08 5,000 10.60%

DWS Fixed Term Fund - Series- 59 (Insti.) 2 Years 4-Sep-08 5,000,000 11.50%

DWS Fixed Term Fund - Series- 59 (Reg.) 2 Years 4-Sep-08 5,000 11.25%

Lotus India FMP - 375 - Days Series XVI (Insti.) 375 Days 2-Sep-08 500,000 11.00%

Lotus India FMP - 375 - Days Series XVI (Reg.) 375 Days 2-Sep-08 5,000 10.50%

SBI SDFS - 370 Days - 1 (Insti.) 370 Days 1-Sep-08 500,000 11.50%

SBI SDFS - 370 Days - 1 (Reg.) 370 Days 1-Sep-08 5,000 11.00%

Templeton Fixed Horizon Fund- Series XI-Plan B 367 Days 1-Sep-08 5,000 11.30%

ABN AMRO Fixed Term Plan - Series 13: Plan C(Insti.) 370 Days 1-Sep-08 2,500,000 11.50%

ABN AMRO Fixed Term Plan - Series 13: Plan C(Reg.) 370 Days 1-Sep-08 5,000 10.90%

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DEBT FUND ANALYSIS

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Contact Details

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DEBT FUND ANALYSIS

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