UTI Credit Opportunities Fund (UCOF)

A fund that aims to utilise opportunities present across different maturities and credit ratings.

Summary

Type	Open-ended Debt Scheme	Benchmark Index	CRISIL Composite Bond Fund Index
Min. Investment: Additional purchase:	Lump sum - Rs 5,000 & in multiples of Re 1thereafter In multiples of Re 1 without any upper limit	Exit Load	1.25% if redeemed on or before 365 days from the date of allotment of units; 0.75% if redeemed after 365 days but on or before 548 days; Nil, if redeemed after the completion of 548 days from the date of allotment of units
Entry Load	Nil	Face Value	Rs 10
Issue Opens	October 25, 2012	Issue Closes	November 08, 2012

 

Investment Objective*

The investment objective of the scheme is to generate reasonable income and capital appreciation by investing in debt and money market instruments across different maturities and credit ratings. There is no assurance that the investment objective of the scheme will be achieved.

 

(Source: Scheme Information Document)

 

Is this fund for you?

Credit opportunities funds is a variable of income funds, which hold debt papers across maturities and credit ratings. Thus the dynamic nature of them, imbibes the flexibility to shift the maturity profile of the portfolio (taking a view of the interest rate scenario) as well as giving due consideration to credit ratings . Hence, these funds emphasize on generating attractive returns in the long-term by riding the entire interest rate cycle, while managing interest rate volatility over a period of time. Having said that, medium to long-term income funds are sensitive to interest rates and thus do witness high volatility typically in the rising interest rate scenario; however the impact of the fluctuation fades out over a period of time. These funds are ideal for parking medium to long-term investible surplus, preferably in the constant and falling interest rate scenario.

UTI Credit Opportunities Fund (UCOF) is one such medium to long-term income fund from the stable of UTI Mutual Fund. UTI Mutual Fund is an established player in the Indian mutual fund industry having well laid investment processes and systems. The fund house has a decent track record of managing debt oriented schemes.

The timing of launch of this fund seems to be appropriate as there is a remote possibility of interest rates moving northward here onwards, at least until WPI inflation depicts signs of mellowing down. It is noteworthy that, at present WPI inflation is still over the comfort zone of the Reserve Bank of India (RBI), which is precluding them to cut rates and thus cost of borrowing remains high. Banks are not targeting aggressive credit growth given the deteriorating asset quality and massive loan restructuring in last few quarters. Furthermore, heavy Government borrowing scheduled for the second-half of the current fiscal (FY13) is expected to result in lesser disbursement to corporate Inc. This may eventually result in expansion of yield spread.

 

Portfolio Strategy

UCOF has a flexibility to vary its exposure to various debt instruments depending on the interest rate scenario and the liquidity position in the system. The fund endeavours to take advantage of yield spreads between the debt instruments of different credit qualities. Also, UCOF would invest across the maturity curve.

  Indicative Asset Allocation

Instruments	Indicative Asset Allocation*	Risk Profile
Debt Instruments	35%-100%	Low to Medium
Money Market Instruments	0%-65%	Low

(Source: Scheme Information Document)  

UCOF can invest upto 50% of its total assets in securities carrying rating of AA or lower rating. The fund may invest not more than 50% of its debt portfolio in domestic securitised debt. To avoid over exposure to lowly rated debt instruments from a particular sector; a cap of 30% has been laid. However this limit is not applicable for, AAA rated instruments of PSU Banks and AAA rated instruments of Public Financial Institutions (PFIs), provided the investment is in securities of NBFCs (issuer) and the issuer NBFC being rated AAA (Long term) and A1+ (Short term). The cap of 30% will also not be applicable also for investments in Collateralised Borrowing and Lending Obligations (CBLO), Certificate of Deposits issued by Banks, Government Securities and Treasury Bills.

UCOF may also invest in foreign debt securities in the countries with fully convertible currencies. Such investments are subject to the maximum of 10% of the net assets.

 

Fund Manager Profile

The fund will be managed by the duo Mr Amandeep S. Chopra and Mr Arpit kapoor.

Mr Chopra, a Science graduate and an MBA, has a work experience of over 14 years in the field of fund management. He has been working with UTI Mutual Fund from the time when it was known as Unit Trust of India. Before Joining Unit Trust of India 14 years back, he was associated with Aaina Exports Limited and Stenay Limited.

The other funds managed by Mr Chopra are as follows;

UTI-Balanced Fund (Debt Portfolio), UTI-Bond Fund,UTI-Children’s Career Balanced Plan (Debt Portfolio), UTI-CRTS (Debt Portfolio), UTI-Dynamic Bond Fund, UTI Fixed Maturity, UTI-Fixed Income Interval Funds, UTI Fixed Term Income Funds, UTI-Floating Rate Fund – STP, UTI-Gilt Advantage Fund, UTI-G Sec Fund, UTI-Liquid Cash Plan, UTI-Mahila Unit Scheme, UTI-MIS-Advantage Plan, UTI Money Market Fund, UTI-Monthly Income Scheme (Debt Portfolio), UTI-Retirement Benefit Pension Fund (Debt Portfolio), UTI-Short Term Income Fund, UTI-Treasury Advantage Fund and UTI-ULIP.

Mr Arpit kapoor, will be the dedicated fund manager for investments in ADRs/GDRs/Foreign securities and thus would be responsible for investments made in foreign debt by UCOF.

Mr Kappor holds a bachelor’s degree in Technology and has also completed a Post Graduate Diploma in Management (PGDM). He has an experience of over 3 years in research and fund management.

 

Fund Outlook

In the second quarter review of monetary policy, RBI has kept policy rates unchanged, but has infused liquidity worth Rs 17,500 crore vide a Cash Reserve Ratio (CRR) cut of 25 bps or 0.25%. However, we think that cost of long-term funds is unlikely to fall as repo (rate at which banks borrow from RBI) still remains high. This may widen the yield spread on long term bonds of different credit quality. Furthermore, till RBI maintains its concern over WPI inflation; long term bonds are unlikely to see any meaningful rally. However, CRR cut will ease the liquidity pressure in the overnight money market. Against this backdrop, the superior performance of the fund may come only by compromising on credit quality, which entails one to high credit risk as well.

 

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