Indiabulls Dynamic Bond Fund – A Worthy Bet In Current Times?
Nov 29, 2018

Author: Aditi Murkute

With the launch of Indiabulls Dynamic Bond Fund (IDBF), Indiabulls Mutual Fund has added another debt-oriented scheme to its product basket to cover all sub-categories of debt funds. Indiabulls Dynamic Bond Fund is a category of debt mutual fund that holds the mandate to invest in debt instruments across maturity periods.

IDBF will allocate 100% of its assets in various debt and debt-related instruments of varying maturities. It aims to commensurate with the risk taken by active duration management of the portfolio.

Thus, a dynamic bond fund has the flexibility to manage/ allocate its assets dynamically taking a sense of the interest rate cycle – meaning, in which direction interest rates will move. The main purpose of a dynamic fund is to optimise returns, in both falling and rising markets.

The price of bonds is inversely related to the interest rates. When the interest rates fall, bond prices rise and vis-versa.

In the recent RBI Monetary policy 2018-19 meeting, although the repo rate was kept unchanged at 6.5%, the stance of the policy was shifted to ‘calibrated tightening’ from ‘neutral’ citing potential risk to the inflation trajectory. This was done in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2% while supporting growth.

In our view, the RBI would not budge and reduce rates in the 5th bi-monthly monetary policy for 2018-19 (scheduled in December 2018); it would wait for certain definitive signals.

In such times, first selecting the category of debt mutual funds becomes crucial. To deal with debt market volatility, fund houses and distributors often promote Dynamic Bond Funds.

But the fact remains that dynamic funds do carry moderate-to-high risk and therefore should be considered only if you have the stomach for high risk and investment time horizon of at least 3 years.   

[Read: Why Comparing Returns to Risk Is More Meaningful!]

Table 1: NFO Details

Type An open-ended dynamic debt scheme investing across the duration Category Dynamic Debt Fund
Investment Objective To generate reasonable returns commensurate with the risk taken by active duration management of the portfolio. The Scheme would be investing in debt instruments including but not limited to bonds, debentures, government securities and money market instruments over various maturity periods.

However, there can be no assurance that the investment objective of the scheme will be achieved. The Scheme(s) does not assure or guarantee any returns.
Min. Investment Rs 500 and in multiples of Re 1 thereafter Face Value Rs 10 per unit
Plans  • Direct
• Regular
  • Growth
  • Dividend
    • Dividend Re-investment Facility
    • Dividend Pay-out Facility
    • Dividend Sweep Facility
Entry Load Not Applicable Exit Load
  • Redemption/Switch on or before 12 months of subscription: 3%
  • Redemption/Switch on or before 24 months of subscription: 2%
  • Redemption/Switch on or before 36 months of subscription: 1% Post completion of 36 months: Nil
Fund Manager Malay Shah (For Debt Segment) Benchmark Index CRISIL Composite Bond Fund Index
Issue Opens November 16, 2018 Issue Closes: November 30, 2018
(Source: Scheme Information Document)

How will Indiabulls Dynamic Bond Fund allocate its assets?

Under normal circumstances, the scheme’s asset allocation pattern will be as under:

Table 2: IDBF's Asset Allocation

Indicative allocations
(% of total assets)

Risk Profile
Debt instruments * 0% to 100% Low to Medium
Money Market Instruments 0% to 100% Low to Medium
*securitized debt cumulative allocation not to exceed 25% of the net assets of the Scheme (excluding foreign securitized debt). The Scheme may use derivatives for such purposes as maybe permitted by the Regulations, including for the purpose of hedging and portfolio balancing, based on the opportunities available and subject to guidelines issued by SEBI from time to time.
(Source: Scheme Information Document)

What is the Investment Strategy of the Scheme?

IDBF seeks to maximize risk-adjusted returns to the investor through an active management of the portfolio, by elongating the duration of the portfolio in a falling interest rate scenario and reducing the duration at a time when interest rates are moving up.

The fund manager would seek to enhance returns by trading on the shape of the yield curve in the short to the medium time frame and the differentiated premia offered by the market to different issuers of debt.

As IDBF’s objective is to maximize returns without compromising on safety and liquidity, the portfolio will have a judicious mix of instruments issued by the universe of eligible issuers across the spectrum. The manager will analyse the macroeconomic environment before deciding on the portfolio maturity.

The Investment Strategy would be a combination of Top-Down and Bottom-Up approach for investments.

The Top-down approach would entail:

  1. Study of the current state of the economy

  2. Study of the current inflationary trends in the economy and the resultant effect on yields and interest rate movement in the debt market

  3. Study of the liquidity flows in the system

These studies would help the fund manager determining the duration call one has to take during portfolio construction.

The Bottom-up approach would entail:

  1. Identifying investment opportunities in individual companies

  2. Management evaluation, corporate governance, industry analysis, business analysis, past track record, future plans, projections, expected returns and valuations would be some of the key points while choosing a company.

Based on the above approaches, a Debt Investment Universe would be constructed for portfolio building.

Sovereign Debt i.e. Central Govt. Securities and State Govt. Securities would also be part of the investment universe. Investment in them would take place in accordance with the objectives of the scheme.

As a result, IDBF stands to expose to market risk which can get captured partially by ‘mark-to-market component’ thereby inducing a potential daily volatility.

Also, IDBF might invest in credits which have a moderately higher credit risk. To mitigate the risk a rigorous credit evaluation of the instruments proposed to be invested in will be carried out.

IDBF may use derivative instruments like interest rate swaps like Overnight Indexed Swaps (“OIS”), forward rate agreements, interest rate futures (as and when permitted) or such other derivative instruments as may be permitted under the applicable regulations. Derivatives will be used for the purpose of hedging, and portfolio balancing or such other purpose as may be permitted under the regulations and Guidelines from time to time.

Who will manage the Indiabulls Dynamic Bond Fund?

Indiabulls Dynamic Bond Fund will be managed by Head of Fixed Income, Mr Malay Shah. He is a Commerce Graduate (B. Com) with MMS degree to his credit and has an experience of around 15 years in the field of finance, especially in Debt - Dealing and Fund Management.

Prior to joining Indiabulls Mutual Fund, he was working as the capacity of Head – Fixed Income with Peerless Funds Management Co. Ltd, managing all the debt Schemes.

Mr Malay is the dedicated fund manager for Debt Segment at the Indiabulls Mutual Fund. Some of the schemes which he manages include Indiabulls Arbitrage Fund, Indiabulls Value Discovery Fund, Indiabulls Savings Income Fund, Indiabulls Liquid Fund, Indiabulls Ultra Short-Term Fund, Indiabulls FMP Series V-1175 days, Indiabulls Savings Fund and Indiabulls Tax Savings Fund.

Table 3: Performance of the Schemes Managed By Mr Malay Shah

Scheme Name

SI Benchmark Name

Managing Since

Scheme Returns (%)

Benchmark Returns (%)
Category: Conservative Hybrid Fund
Indiabulls Savings Income Fund(G)
-Direct Plan
Crisil Composite Bond Fund Index Dec-2015 10.9498 8.0644
Category: Gilt
Indiabulls Gilt(G)-Direct Plan I-Sec Composite Gilt Index Aug-2014 8.8207 3.0006
Category: Liquid
Indiabulls Liquid Fund(G)
-Direct Plan
Crisil Liquid Fund Index Aug-2014 7.7971 8.0295
Category: Medium Duration
Indiabulls Income Fund(G)
-Direct Plan
Crisil Composite Bond Fund Index Aug-2014 9.3314 8.0644

Category: Money Market

Indiabulls Savings Fund(G)
-Direct Plan
Crisil Liquid Fund Index Sep-2018 7.7190 8.0295
Category: Short Duration
Indiabulls Short-Term Fund(G)
-Direct Plan
Crisil Short Term Bond Fund Index Aug-2014 9.1347 8.4002
Category: Ultra Short Duration
Indiabulls Ultra Short-Term Fund(G)
-Direct Plan
Crisil Liquid Fund Index Aug-2014 8.5516 8.0300
(Source: ACE MF-PersonalFN Research)

As it can be seen, most of the schemes managed by the fund manager have been outperforming with their respective benchmark index. His management style does give much confidence to investors.

The Outlook of Indiabulls Dynamic Bond Fund:

To achieve the stated investment objective, how the fund manager constructs the debt portfolio in the prevailing interest rate scenario remains to be seen.

Largely IDBF’s performance will depend on the RBI’s monetary policy stance as it tries to capture returns over the interest across durations. The fortune of IDBF will be closely linked to active duration management of the portfolio while it plays across maturity periods.

[Read: Skip NFOs, Instead Consider Building A Strategic Mutual Fund Portfolio]

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