DWS Medium Term Income Fund

A fund that endeavours to generate attractive returns through a combination of income and capital appreciation over the medium to long term.

Summary

Type	An open-ended debt scheme	Benchmark Index	CRISIL Composite Bond Fund Index
Min. Investment:	For Lumpsum -> Rs 5,000 and in multiples of Re 1 thereafter For Systematic Investment Plan (SIP)* - > Rs 1,000 per month for a minimum period of 12 months; or Rs 2,000 per month for a minimum period of 6 months; or 4 instalments of Rs 3,000 each for 3 months For Systematic Transfer Plan (STP) - > Rs 1,000 per month for a minimum period of 12 months; or Rs 2,000 per month for a minimum period of 6 months; or 4 instalments of Rs 3,000 each for every 3 months *Available on an ongoing basis but not during NFO	Options offered:	Growth Option Dividend Option
Face Value	Rs 10 per unit	Expense Ratio:	Upto 2.25%
Entry Load	Nil	Exit Load:	1.00% if the units are redeemed / switched out within 12 months from the date of allotment; Nil if the units are redeemed / switched out subsequent to 12 months of allotment of units
Issue Opens	February 18, 2014	Issue Closes:	March 04, 2014

 

Investment Objective*

The investment objective of the scheme is to generate income and capital appreciation by investing in a portfolio of high quality debt securities and money market instruments.

There can be no assurance that the investment objective of the Scheme will be realized.

*Source: Scheme Information Document

 

Is this fund for you?

DWS Medium Term Income Fund (DMTIF) is a debt oriented mutual fund scheme from the stable of Deutsche Mutual Fund, which would be investing a dominant portion of its assets in debt securities and the rest in money market instruments. DMTIF intends to maintain an average maturity of the portfolio between 3 to 7 years, thereby tapping opportunities at the longer end of the yield curve.

While DMTIF intends to have investment grade securities in its debt portfolio, it may also invest in underrated debt securities which the Fund Manager believes to be of equivalent quality, as per regulatory guidelines.

As many of you may be aware that the yields curve has remained rather elevated for quite some time now. But with the Government being confident of ending the fiscal year with a fiscal deficit of 4.6% of GDP - well below the budgeted target of 4.8% - and WPI inflation too haven fallen yet again to an 8-month low of 5.05% (mainly led by the sharp descending move depicted by food prices), along with the CPI inflation for January 2014 at 8.79%, possibly being a relief for the Reserve Bank of India; the risk at the medium term of the yield curve seem to have receded. But the longer end of the yield curve could yet see some volatility. Therefore if the macroeconomic variables all fall in place as estimated, the environment seems conducive for DMTIF to build its portfolio.

However DMTIF would be suitable 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% in longer tenure debt mutual funds.

 

Portfolio & Investment Strategy

The AMC endeavours to generate attractive returns through a combination of income and capital appreciation over the medium to long term. DMTIF would build a portfolio with investment in only investment grade debt securities, but if the fund manager may also invest in in unrated debt securities, which the Fund Manager believes to be of equivalent quality, as per regulatory guidelines. DMTIF will try to identify securities that yield relative value over others for similar risk and liquidity level by deploying tools such as:
 

• Yield curve analysis
• Spread between asset classes
• Horizon returns
• Forward implied interest rates
   

Also, to reduce the volatility of the portfolio and /or to enhance portfolio returns, DMTIF may also use derivatives. It is noteworthy that investing in debt instruments carries various investment risks such as interest rate risk, liquidity risk, default risk, re-investment risk, etc. While they cannot be done away with, they can be minimized by diversification and effective use of hedging techniques.

The fund seeks to maintain the weighted average maturity of the portfolio between 3 years and 7 years.

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

 

Instruments	Allocation Range (%)		Risk Profile High/Medium/Low
	Minimum	Maximum
Debt securities including securitised debt*	70	100	Low to Medium
CBLO, Reverse Repo, T-Bills and Money Market Instruments	0	30	Low

* Investment in securitised debt would be upto 50% of the net asset of the scheme
(Source: Scheme Information Document)  

By investing in the aforesaid debt and money markets instruments, DMTIF aims to achieve its investment objective cited above and will benchmark its performance against the Crisil Composite Bond Fund Index. The said index tracks the performance of the constituents like the Call Index, the CP Index, the AAA Index, AA Index and the Gilt Fund Index to arrive at the index figure. It is a convenient, appropriate and easily available tool for analysis and to capture market movements and for determining the corresponding effect on a portfolio consisting of the above-mentioned instruments.

 

Fund Manager Profile

The fund will be managed by the duo - Mr Nitish Gupta and Mr Kumaresh Ramakrishnan.

Mr Nitish Gupta holds over 18 years of experience in the Indian fixed income markets, and before joining Deutsche Asset Management (India) Private Limited as fund manager in May 2008; has worked with Allahabad Bank (in the treasury department in capacity of the manager and then senior manager) and RR Financial Consultant Ltd. (as manager – research). He has to his credit a degree in Engineering (B.E.), and a MBA. At Deutsche Mutual Fund, Mr Gupta also manages DWS Gilt Fund, DWS Premier Bond Fund, DWS Short Term Fund, DWS Income Advantage Fund, DWS Twin Advantage Fund, DWS Treasury Fund – Investment Plan, DWS Banking & PSU Debt Fund and DWS Inflation Indexed Bond Fund.

Mr Kumaresh Ramakrishnan also holds over 18 years of experience in the Indian fixed income markets, and has worked at Deutsche Asset Management (India) Private Limited in capacity as credit analyst and then later became a fund manager and head of fixed income. Before joining Deutsche Asset Management, Mr Ramakrishnan has worked with Societe Generale (as senior credit analyst) and before that with CARE (as a senior rating analyst). He too has to his credit a degree in Engineering (B.E.), and a MBA. At Deutsche Mutual Fund, Mr Ramakrishnan also manages DWS Cash Opportunities Fund, DWS Insta Cash Plus Fund, DWS Money Plus Fund, DWS Income Advantage Fund (debt portion of the scheme), DWS Global Agribusiness Offshore Fund, DWS Global Thematic Offshore Fund, DWS Fixed Term Fund (Series 91,96), DWS Fixed Maturity Plan (Series 4, 16, 18, 23, 24, 26-33) and DWS Hybrid Fixed Term Fund (Series 4-14).

 

Fund Outlook

As mentioned earlier, DMTIF is launched at a time when the yields have remained rather elevated and now are expected move down with the Government confident that the fiscal deficit for the current financial year will be placed at 4.6% of GDP, as against the budgeted target of 4.8%. Moreover, the worry over CAD also has receded with narrowing seen therein over the past few months. RBI too may breathe a sigh of relief if the aforesaid macroeconomic variables fall in place. At present, with both WPI and CPI inflation having mellowed down, the central bank may resist a hawkish move. In fact, in the guidance enunciated in the 3rd quarter review of monetary policy the RBI has already mentioned that, if disinflationary process evolves according to this baseline projection, further policy tightening in the near term is not anticipated at this juncture. In fact, if inflation eases at a pace that is faster than we currently anticipate, and that reduction is expected to be sustained, the Reserve Bank will have room to become more accommodative.

So given the aforesaid, yields are expected to reduce, and this therefore at this juncture would make it conducive for DMTIF to build its portfolio. Nonetheless, the longer end of the yield curve could yet see some volatility.

 

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