2 debt funds from IDFC Mutual Fund

By Himanshu Srivastava |  01-07-21 | 
 
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About the Author
Himanshu Srivastava is a Research Analyst with Morningstar. He would like to hear from you, but cannot give financial advice.

Over the years, IDFC Mutual Fund has shown improvement in its investment practices, and hence its showing on the stewardship front now falls in line with the industry norm. The fixed-income team has been relatively more stable under the leadership of Suyash Chaudhary. As on May 2021, the fund house manages assets worth Rs 1.27 lakh crore.

Here are two debt funds from IDFC Mutual Fund reviewed by us recently.

IDFC Dynamic Bond Fund

  • Category: Dynamic Bond
  • Star Rating: 5 stars
  • Analyst Rating: Neutral (Regular), Silver (Direct)
  • Fund Manager: Suyash Choudhary
  • Inception: December 2008
  • Return: 3.21% (1 year), 9.96% (3 year), 8.46% (5 year), 9.08% (10 year), 8.32% (since inception). Return of regular plan as on June 30, 2021.
  • Date of Analysis: June 2021
  • Average Credit Quality: AAA (as of May 2021)
  • Modified Duration: 4.27 (as of May 2021)
  • Yield to Maturity: 5.80 (as of May 2021)
  • Interest Rate Sensitivity: Moderate
  • Credit Quality: High
  • Total Expense Ratio: 1.60% (regular), 0.73 % (direct)
  • Fund Overview

Suyash Choudhary builds the portfolio with an emphasis on safety and liquidity. Taking credit bets is not a part of the strategy, which has enabled him to tide over credit risk more comfortably than most peers. He is at his best when he gets a free hand while investing, and the fund’s strategy allows him to play to his strength. He invests across the yield curve and segments--government securities, corporate bonds, and money market instruments. The team studies bond spreads and the liquidity of various segments to determine their optimal allocation in the portfolio.

Given duration is an integral part of this strategy, studying the macroeconomic scenario for taking an interest-rate directional view forms the broader framework of the process. The interest-rate direction is determined analyzing various influencing factors such as growth versus inflation, fiscal and current account deficit, private sector and government borrowings, fiscal and monetary policy view, money supply, currency market movement, and global interest-rate scenarios among others. This is complemented by an overlay of technical factors where the team examines the demand/supply dynamics to get clarity on valuations and the direction of the yield curve. Subsequently, interest-rate direction calls and anticipation of yield curve movement forms the basis of portfolio positioning in duration terms.

For corporate bonds, the team lays a lot of emphasis on the promoter group, its track record, and corporate governance standards. Suyash Choudhary will not lend to a company facing corporate governance issues. He also looks at companies’ competitive standing vis-à-vis peers, its practices, cash flows, liquidity profile, business, and financial risks among others. A noteworthy aspect of the approach is that the investment team takes a relatively long-term view and does not pay much heed to news flows. The view once formed is applied across fixed-income funds.

IDFC Bond Fund – Income Plan

  • Category: Medium to Long Duration
  • Star Rating: 5 stars
  • Analyst Rating: Neutral (Regular), Bronze (Direct)
  • Fund Manager: Suyash Choudhary
  • Inception: July 2010
  • Return: 2.61% (1 year), 9.28% (3 year), 7.93% (5 year), 8.57% (10 year), 8.34% (since inception). Return of regular plan as on June 30, 2021.
  • Date of Analysis: June 2021
  • Average Credit Quality: AAA (as of May 2021)
  • Modified Duration: 4.26 (as of May 2021)
  • Yield to Maturity: 5.79 (as of May 2021)
  • Interest Rate Sensitivity: Moderate
  • Credit Quality: High
  • Total Expense Ratio: 1.97% (regular), 1.32% (direct)
  • Fund Overview

Given the defined mandate, its duration is maintained in the range of four to seven years with the flexibility to move in the range of one to seven years under an anticipated adverse scenario. Having said that, the fund continues to have an element of duration play, which is positive.

Despite changes, there continues to be an element of duration play in the strategy. Therefore, studying the macroeconomic scenario for taking interest-rate directional view forms the broader framework of the process. The interest rate direction is determined analyzing various influencing factors such as growth versus inflation, fiscal and current account deficit, private sector and government borrowings, fiscal and monetary policy view, money supply, currency market movement, and global interest-rate scenarios among others. This is complemented by an overlay of technical factors where the team examines the demand/supply dynamics to get clarity on valuations and the direction of the yield curve.

Subsequently, interest-rate direction calls and anticipation of yield-curve movement forms the basis of portfolio positioning in duration terms.

For corporate bonds, the team lays lot of emphasis on the promoter group, its track record, and corporate governance standards. Suyash Choudhary will not lend to a company facing corporate governance issues. He also looks at companies' competitive standing vis-à-vis peers, its practices, cash flows, liquidity profile, business, and financial risks among others. A noteworthy aspect of the approach is that the investment team takes a relatively long-term view and does not pay much heed to news flows. The view once formed is applied across the funds.

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