BOI AXA Corporate Credit Spectrum Fund

A debt oriented mutual fund scheme which will be investing a predominant portion of its assets in corporate debt.

Summary

Type	An open-ended debt scheme	Benchmark Index	CRISIL Composite Bond Fund Index
Min. Investment: Min. Additional Investment:	Rs 5,000 and in multiples of Rs 5,000 thereafter Rs 5,000	Plans:	Direct; and Regular
Face Value	Rs 10 per unit	Expense Ratio:	Upto 2.25%* *Direct Plan shall have a lower expense ratio to the extent of distribution expenses / commissions which is charged in the regular Plan
Entry Load	Nil	Exit Load:	4% if redeemed within 12 months from the date of allotment 3% if redeemed after 12 months but within 24 months from the date of allotment 2% if redeemed after 24 months but within 36 months from the date of allotment Nil if redeemed after 36 months from the date of allotment
Issue Opens	February 6, 2015	Issue Closes:	February 20, 2015

 

Investment Objective*

The Scheme's investment objective is to generate capital appreciation over the long term by investing predominantly in corporate debt across the credit spectrum within the universe of investment grade rating. To achieve this objective, the Scheme will seek to make investments in rated, unrated instruments and structured obligations of public and private companies.

*Source: Scheme Information Document

 

Is this fund for you?

BOI AXA Corporate Credit Spectrum Fund (BACCSF) is a debt oriented mutual fund scheme from the stable of BOI AXA Mutual Fund, which would be investing a predominant portion of its assets in corporate bonds (including securitised debt not exceeding 50% of the net assets of the scheme), with a small portion in money market instruments in order to manage liquidity requirements. Given the mandate of investing in corporate bonds, BACCSF will not be investing in dated Government Securities and State Development Loans. The Scheme while investing in corporate debt will invest across the credit spectrum within the universe of investment grade rating securities. But as enunciated in its investment objective, the Scheme may also seek to make investments in rated unrated instruments and structured obligations of public and private companies. Hence BACCSF holds the investment flexibility to capitalize on market opportunities taking view on interest rates, liquidity condition and other macroeconomic factors affecting the interest rates.

At present, the yield of India’s 10-Year benchmark (8.40% 2024 G-Sec) is trading in a narrow range of 7.50% - 7.70%. The retail inflation (as measured by the Consumer Price Index) after recording the lowest ever reading of 4.38% in November 2014; rose for the second consecutive month in January 2015 to 5.11%. Now while that data appears to have moderated, milk and milk products, fruits, vegetables, and pulses seem to have kept the pressure. This is why the Reserve Bank of India (RBI) too kept policy rate unchanged in its 6th bi-monthly monetary policy statement, 2014-15 after haven surprisingly reduced policy rates by 25 basis points (bps) in mid-January 2015. The central bank in its last monetary policy stance also cited the low probability but highly influential risks of reversal of international crude prices due to geo-political events as the other factor in play. The central bank also said that heightened volatility in global financial markets, including through the exchange rate channel, also constituted a significant risk to the inflation assessment. But it also mentioned that by and large inflation dynamics have so far been consistent with the assessment of the balance of risks by the Reserve Bank bi-monthly monetary policy statements, although with some undershooting relative to the projected path of disinflation.

The RBI has preferred to remain cautious rather than over optimistic in the backdrop of the macroeconomic assessment and with the budget coming up which may bring significant change in the fiscal space. In the guidance of the last monetary policy, the central bank has indicated that the key to further easing are data that confirm continuing disinflationary pressures. Also critical would be sustained high quality fiscal consolidation. Given that there have been no substantial new developments on the disinflationary process or on the fiscal outlook since January 15, 2015, the central bank kept policy rates unchanged.

Nevertheless, a surprise rate in mid-January 2015 of 25 bps can be seen as an overture to a lower interest rate regime by the central bank. We can expect a further drop in interest rates going forward in 2015 and expect the next cut in interest rates sometime after the Government proposes its budget at the end of this month. In our view RBI may reduce policy rates by another 25 bps cut in the new financial year in its 1st bi-monthly monetary policy statement, 2015-16 scheduled on April 7, 2015. India’s Q3FY15 GDP growth rate increased precipitously to 7.5% after plateauing for long. The buoyancy of such an upbeat data can be attributed to CSO’s new methodology for calculating the GDP growth rate and the change in base year to 2011-12 from 2004-05. The aforesaid scenario which has positive undertones is therefore encouraging many to bet on the medium to longer end of the maturity curve hoping that the interest rates would reduce further. Such an environment would be conducive for the fund to build its portfolio at the longer end of the maturity curve provided enough care is taken in the credit evaluation policy, credit research and economic research.

However BACCSF would be okay only for those investors who have an investment horizon of at least 3 to 5 years. Also, given the dynamic macroeconomic environment, such investors would be better-off holding not more than 20-25% in longer tenure debt mutual funds.

 

Portfolio Strategy

While BACCSF will invest in corporate debt across the credit spectrum and money market instruments, it will also also invest in the debt instruments where the fund manager believes that the capital structure needs or where broader market dislocation has created an opportunity to generate superior risk-adjusted returns. Moreover, the scheme may also invest in debt instruments of companies requiring structured debt solutions where the fund manager believes investment in debt securities of such companies provides attractive opportunities and meets specific financing need of the issuer.

BACCSF’s investments will comprise of privately negotiated investments in debt or debt securities of public or private companies, including, bonds, debentures and asset-backed securities. Typically such transactions are privately originated investments that provide debt capital directly to companies in need of financing generally unobtainable through the broader capital markets. The Scheme will focus on investments in debt instruments of companies wherein the structuring needs are driven by need for flexibility in the terms of financing, such as tenor, type of collateral, repayment scheduling, interest payment scheduling etc.

BACCSF will follow a research oriented approach for building its portfolio which will comprise of qualitative as well as quantitative research of all the investment proposals received/ available in the market. But all the investment options will be those in line with the investment objectives of the scheme and will be evaluated on various parameters such as:
 

• Credit quality;
• Quality of underlying security;
• Pricing;
• Deal structure, etc.
   

The Fund manager will take investment decisions which are consistent with the regulatory requirements and the investment objectives of the scheme

As far as portfolio turnover of the fund is concerned, it will be a function of market inflows, outflows as well as market opportunities available to the fund manager. Active asset allocation would also impact portfolio turnover. However, it will be the endeavour of the fund manager to keep portfolio turnover rate as low as possible.

Under normal circumstances the asset allocation pattern for the scheme will be as under:
 

Instruments	Allocation Range (%)		Risk Profile High/Medium/Low
	Minimum	Maximum
Corporate Debt (including securities debt*)	80	100	Medium to High
Money market instruments	0	20	Low

*Investments in securitized debt, will not exceed 50% of the net assets of the Scheme as at the time of Purchase
(Source: Scheme Information Document)  

BACCSF will benchmark its performance against the CRISIL Composite Bond Fund Index, based on the investment objective of investing predominantly in corporate debt.

 

Fund Manager Profile

The fund will be managed by Mr. Alok Singh.

Mr Singh is a Post Graduate in Business Administration from ICFAI Business School and a CFA with over 14 years of experience in Fixed Income Fund Management. He has a wealth of experience and impressive track record in fund management, both for resident as well as overseas investors. Prior to joining BOI AXA Mutual Fund, Mr Singh was with BNP Paribas Asset Management Pvt. Ltd. (from February 2005 to March 2012), and as part of his employment there, Mr Singh won numerous awards for stellar fund performance. He has also worked with Axis Bank Limited from August 2000 to January 2005.

 

Fund Outlook

Going forward as interest rates are likely to lower post-budget, it would be set positive undertones to bet on the medium to longer end of the yield curve. Such an environment would be conducive for the fund to build its portfolio at the longer end of the maturity curve provided enough care is taken in the credit evaluation policy, credit research and economic research. A part of the debt rally has taken place based on expectation of rate; which the fund manager should hopefully take cognisance of while building the portfolio. The fortune of the fund would be closely linked to how the fund manager constructs the portfolio across the corporate credit spectrum and quality of debt paper he holds.

 

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