Fund Manager, Fixed Income
Mr. Abhishek has been associated with the company since October 2006 and his key responsibilities include fund management of debt schemes. Prior to joining Kotak AMC, Me, Abhishek was working with Securities Trading Corporation Of India Ltd where he was looking at Sales & Trading of Fixed Income Products apart from doing Portfolio Advisory. He has been awarded twice as one of the Highly Commended Investors in Indian Rupees Bonds from the Asset magazine Hong Kong. His educational background is B.A (Management) and MBA(Finance)
Debt Fund Manager Interview:
Q. Tell us about the recent trends in the global and domestic debt markets. What is the current scenario for the domestic markets?
Answer: Global bond yields have been trending downwards in recent times. US Treasury, British Gilts, Japanese JGB and Germany bund yields are near 3month lows; globally, this indicates stable interest rate environment. Indian bond yields, on the contrary, are near 3m highs.
Outlook for the 10 yr G sec is that it is likely to be volatile with upwards bias in the near term. Markets will wait for the monsoon and its impact on inflation before the yields start on a downward trend again.
Q. What impact do the factors of domestic inflation and interest rates have on the debt markets and bond yields? What is your outlook on these parameters in the near term?
Answer: Inflation and bond yields move in tandem; if inflation is expected to rise the bond yields will rise and if inflation is expected to fall the bonds yields will fall. We believe inflationary pressures will not aggravate beyond 5% and will eventually cool down if monsoons are normal and crude oil remains around US$55. This will lead to softening of rates in medium term. Near term rates will remain volatile with upward bias.
Q. There is a perception that debt funds are more risky compared to traditional debt products. What strategies do the fixed income funds adopt to manage & mitigate the market risks?
Answer: We have a variety of debt funds and therefore, one should not generalize them as risky. Debt funds being mark to market on daily basis therefore are volatile but as safe as any traditional product. There are a variety of funds which try to optimize the level of risk for the investors.
For example - an investor who is completely risk averse, neither credit risk nor duration risk, should look at liquid funds; someone who has some tolerance for both and has 6m investment horizon should look at short term funds; someone who can tolerate some credit risk and can stay invested for 2-3 yrs should look at credit accrual funds; long term investors should look at duration funds. We also have pure gilt funds which offer risk free returns and hybrid funds which offer a mix of debt and equity.
In short, there is a wide variety of funds which can cater to the diverse needs of investors.
All the funds are well diversified in terms of stock and sector concentrations to address the market risks. The fund manager dynamically manages the duration and credit risk in the respective funds in line with outlook, rates and fundamentals of the economy.
Q. The interest rates on traditional debt products and investments are slowly being reduced by the government. What investment strategy would you suggest to investors dependent on interest earnings from traditional products to adopt going forward?
Answer: Yes, the government has made the traditional products market linked and therefore investors who are dependent on regular income should look at actively managed credit accrual funds for regular income and duration funds for long term investments.
Q. What is your advice to investors at this point in time? With short (6 months), medium (1.5 years) and long term (3 years) investment horizons, which segments of the debt market should the investors be investing in?
What is the investment and duration strategy followed by your fund-house presently?
Answer: Investors with a 6m horizon should look at Liquid plus or ultra-short term funds; investors with 1.5 yrs horizon can look at accrual funds, short term funds or flexi debt scheme; for investors with 3 yrs investment horizon who can afford to take volatility should consider investing in duration, Gilt or income funds and investors with a 3yr horizon preferring stability should look at Medium term accrual funds.
We have reduced duration across the duration funds as the volatility is very high and we have time before rates start moving down again. We take tactical trading positions and try to trade the volatility with 20-25pct of the portfolio in duration funds. We will increase duration as and when we believe that rates are peaking.