Mr. Amandeep S. Chopra, Sr. Vice-President, UTI Asset Management Company Pvt. Ltd. is a science graduate from St. Stephens College and has pursued his MBA degree from FMS-Delhi University. He has also worked with various departments like DFM (US-64), ERC and DIF. Mr. Chopra is also responsible for managing six funds from the UTI portfolio including UTI Bond Fund and US-2002.

In an exclusive interview with Personalfn, he shares his views on the debt markets post monetary policy, interest rates and utility of income funds from the retail investor's perspective.

Pfn: Markets have seen a downward slide post the monetary policy. What are your views on the same?

Mr. Chopra:  Before the monetary policy a lot of euphoria was building up in the markets. The market had seen largely one-sided movement in interest rates for the past few years and there was an overwhelming consensus among the market participants that there would be a rate cut of some sort. These expectations were built up in terms of investment positions. The credit policy belied market expectations on rate cuts and subsequent cautious statements on the state of the debt markets led to the yields hardening and the yield-curve steepening. The markets have corrected to the pre-monetary policy levels with the long end yields rising faster. For example the 10-Yr papers are once again trading in the 5.20% level yields.

Pfn: What are your expectations from the debt markets?

Mr. Chopra:  Our view is that the one sided decline in the rates is over and interest rates have largely bottomed out. In the short-term period (over the next quarter) the yields are likely to move sideways within a short band until some clarity on key macro-economic variables emerges. There will be this band of 5.15% to 5.25% for the 10-year paper. The key variables markets will watch out for will be inflation, credit off-take in addition to the global interest rate scenario.

Pfn: How do you view these macro-economic variables going forward?

Mr. Chopra:  RBI’s expectation of inflation at 4.0% to 4.5% is in line with our view, though one could see some variability at the upper band. The Government has some degree of flexibility in softening the high commodity and oil prices, which in turn are affected by higher import duty and other indirect taxes. If the Government were to lower the import duty, it can play a role in reducing the commodity prices. On the agricultural sector front we should see 7.5% growth so there should be no reason for crop prices to move up in the next two quarters.

Credit off-take in a significant manner is some time away and with ample liquidity in the system and with the banks, its impact will be felt with a lag effect. On the global interest rate front, the markets will look forward to the next FOMC review in January end. Till then the markets will move sideways.

Pfn: Do you see a rise in interest rates going forward?

Mr. Chopra:  We’ll have to watch out for the above signals. There is sufficient liquidity in the system and credit off-take has begun though not yet in a meaningful manner to impact demand for money. If you are talking about a reversal of say 100 basis points or more, I don’t see that happening in the immediate future. It would defy RBI’s soft interest rate stance. RBI has indicated that it wants credit flow to corporates and households to enable economic activity and growth and banks are flush with funds. Unless one sees a high level of credit offtake (which I don’t see, currently) there is unlikely to be any immediate reversal in interest rates.

Pfn: What do you think of RBI’s assessment of the Indian economy?

Mr. Chopra:  I think they have done a fair job of assessment of the Indian economy. The expectations on the key macro-economic numbers are conservative and they could be reviewing it based on how the economy pans out over the next quarter. RBI has traditionally acted with caution and now when you reflect back, they appear to have been justified in not tinkering with the rates and maintaining their stance.

Pfn: What is UTI’s strategy on the debt side?

Mr. Chopra:  We offer an entire basket of debt products and don’t really have a ‘common’ strategy. Our strategies are always product-based. For example in case of a long-term fund, if we are expecting some volatility in the short-term horizon we move more of the assets into cash, reduce the maturity etc. Though you can’t be out of the market, you can reduce the risk and volatility. We also believe in suitable diversification of the portfolio without concentrating our holdings or taking inordinate risks. Our short-term funds are fully invested (UTI Liquid Short Term Plan) and they have been outperforming in the last one, six-month period. In the regular bond fund (UTI Bond Fund) and the regular gilt fund (UTI G-Sec Investment Plan) we have the lowest maturity among our peers and reasonably higher level of cash. These funds have done very well in the recent reversal in the market.

Pfn: Do you think it makes sense to have an alternate product like a floating rate fund?

Mr. Chopra:  When interest rates were moving downwards, income funds were clearly outperforming all floating rate funds. In the past one-month since the monetary policy was announced, floating rate funds have outperformed income funds. Now that the next three months are likely to be uncertain and certain investors may not have a clear view of where markets are headed, they can move with the markets by investing in a floating rate fund.

It’s like investing in an index fund and moving with the markets. It may be suitable for very risk-averse investors. However for an investor who has an interest rate view there are other products like gilt funds, which are interest rate sensitive and have no credit risk. You also have other categories like income/debt funds, which invest in gilts and corporate bond.

Pfn: What is your advice to the retail investor?

Mr. Chopra:  Retail investors in the debt funds should see comparable yields rather than historical yields. They have seen double-digit returns in the past, but now they will have to assess the options available to them. Debt funds offer stability of returns with lower degree of risk. We believe income funds can give you better returns than fixed deposits, which are a typical alternative. If a 1-Yr fixed deposit offers you 4.75%-5.0%, then a well-managed income fund can deliver more than that plus it’s more tax efficient. The logic for investing in gilt and debt funds still holds.

Pfn: Investors now believe that the coupon rate is all that income funds can offer going forward. Your views

Mr. Chopra:  There will be marginal trading gains but income funds will outperform fixed deposits. Lets assume that if the current scenario remains constant, the 10-Yr paper can fetch you 5.25%, in a gilt fund with a bit of active churning and trading you can earn 25-50 basis points assuming there is some bit of volatility and interest rates move within a 10-basis point band. In such a case the gilt funds give you a cumulative return of nearly 5.75%. After expenses that should give you 5 % to 5.25 %, which is a decent return, compared to fixed deposits.

Pfn: Ideally what should investors look at in an income fund?

Mr. Chopra:  We advise that you should look at not only pure returns but also the variability of those returns in terms of risk. For corporate and large sized investors, fund size is also important. On these parameters our funds score very well. If you were to look at risk-adjusted returns our gilt fund and bond fund are doing extremely well. We also believe in suitable diversification of the portfolio without concentrating our holdings and generally follow a low risk investment style given our large retail investor base. So our portfolios are structured in such a way to reduce the downside risk and volatility.

Pfn: Where should corporate invest their spare funds?

Mr. Chopra:  If a corporate wishes to invest in gilt funds with minimal volatility of returns then a short-term plan (like UTI G-Sec Short Term Plan) is recommended. Since the interest rate outlook is uncertain, it makes sense to be invested funds with low maturity. Also, given the wide spreads between corporate debt and G-Secs, an income fund with a higher corporate debt weightage can also be considered which should gain with the spreads narrowing. Liquid funds, which help you earn money on idle cash, are always popular for parking short-term surpluses.

Pfn: The US Mutual fund industry has seen credibility issues being raised. Do you think the Indian industry could be faced with similar issues?

Mr. Chopra:  Yes, and it is important for the Indian Mutual fund industry to follow practices and policies, which protects the integrity and credibility of the industry. It is already being actively discussed and as a part of this, AMFI has constituted a committee to look into issues like cut-off timings and selective timing/preferential treatment, which was possibly an area of misuse. Once we have a standardized cut-off time across the industry and other requirements like allotment of units at NAV of the date of cheque realization/clearing, the process could largely be streamlined. It will also be necessary to have the cut-off time well before the close of the market hours and limiting the previous day’s NAV concept to only liquid funds/money market funds.

Pfn: Where do you invest your money?

Mr. Chopra:  Most of my investments are in mutual funds and tax-savings instruments.

Pfn: Which individuals have influenced you the most?

Mr. Chopra:  My initial grooming in the financial sector was on the equity side. The investment philosophy and disciplined approach to investing of Warren Buffet, Peter Lynch and Phillip Fischer have been very important.

Pfn: What kind of books do you like to read?

Mr. Chopra:  I like to read history-related books apart from the books related to the area of finance and investing.

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