IDFC Credit Opportunities Fund is an open-ended income fund that will invest predominantly in high yield, relatively less-liquid and low-rated securities.

Summary

Type	An Open ended equity Scheme	Benchmark Index	80% Crisil AA Medium Term Bond Index + 20% Crisil AAA Short Term Bond Index
Min. investment:	-Lump sum - Rs 5,000 and in multiples of Re 1 thereafter - Systematic Investment Plan - Rs 1,000 and in multiples of Re 1 thereafter	Plans: Options:	Regular Direct Growth* Dividend Dividend payout Dividend Reinvestment Dividend Sweep *default option
Face Value	Rs 10 per unit	Expense Ratio:	Upto 2.25%
Entry Load	NA	Exit Load:	1% if redeemed within 12 months from the date of allotment
Issue Opens	February 14, 2017	Issue Closes	February 27, 2017

Investment Objective*

The investment objective of the scheme is to generate returns by predominantly investing in a portfolio of corporate debt securities across the credit spectrum within the investment grade.

However, there is no assurance or guarantee that the objectives of the scheme will be realised.

*Source: Scheme Information Document

Is this fund for you?

IDFC Credit Opportunities Fund (ICOF) is an open-ended income fund with an objective to generate returns by creating a portfolio of corporate debt securities within the mandated investment grade. The fund's mandate is to invest in debt securities (including securitised debt) having a long term credit rating below AAA or equivalent upto 100% of its net assets. The fund will also invest in money market securities (upto 30%) and government securities (upto 50%).

Credit Opportunities Fund looks for opportunities in debt and money market across the wide credit spectrum. The funds further invest in debt securities with rating below AAA. These funds carry a higher liquidity risk. Liquidity tends to be tight in low rated debt instruments (as low rated debt is an indicator of higher risk). Hence, the risk assumed by the credit opportunities fund compared to other income funds is higher. These funds stand in the topmost layer of the risk pyramid. At times, a fund manager may invest in these low rated papers expecting an upgrade in the ratings. If the ratings improve, it might benefit the investors as the bond price increases. However, the risk of a downgrade remains.

ICOF will invest upto 50% of its net assets in government securities with a long-term rating of AAA or equivalent. Further, the fund will invest in money market instruments including CBLO, repo and cash upto 30% of its net assets.

Thus, ICOF is suitable for investors only with high-risk appetite, who have a medium-term investment horizon of 3-5 years.

How will the fund allocate its assets?

Under normal circumstances, the asset allocation pattern followed by the fund will be as under:

Instruments	Indicative allocations (% of total assets)		Risk Profile High/Medium/Low
	Minimum	Maximum
A. Debt securities (including Securitised debt) with long term credit rating below AAA or equivalent (including unrated securities)	50%	100%	Medium to High
B. Government Securities and debt securities (including Securitised debt) with long term credit rating of AAA or equivalent	0%	50%	Medium to High
C. Money Market Instruments including CBLO, repo and cash	0%	30%	Low to Medium

(*Source: Scheme Information Document)

Further, the offer document states that:

• The investment in securitised debt is limited up to 50% of the net assets
• Investment in securities lending is limited up to 20% of the net assets with maximum single party exposure restricted to 5% of the net assets.
• The fund will also invest in derivatives up to 50% of the net assets
• Gross Exposure to Repo of Corporate Debt Securities will be limited up to the extent permitted by the Regulations
• The Scheme may engage in short selling of securities in accordance with the applicable guidelines / regulations.
• The scheme may invest in Credit Default Swaps (CDS) in accordance with the applicable guidelines / regulations
• The cumulative gross exposure through repo transactions in corporate debt securities and credit default swaps along with debt & money market instruments and derivaties shall not exceed 100% of the net assets of the Scheme

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What investment strategies will the fund follow?

In the endeavour to achieve the investment objective set out, ICOF will follow the below mentioned investment strategy…

For Debt Investments:
The investment strategy of the fund will be geared towards managing investor's long-term investment with a view to provide superior levels of yield across the credit spectrum. To manage credit risk, the Fund has put in place a strong rigorous process to evaluate credit risk and monitor the same on a continuous basis. The Fund will also emphasize on collaterals where it believes it is required. The Fund may invest in derivative instruments to hedge against interest rate and/or credit risks. The Fund would invest predominantly in high yielding and relatively less liquid securities.

The aim of the fund manager will be to allocate the assets of the Scheme between various fixed income and money market securities with the objective of achieving optimal returns. The actual percentage of investment in various fixed income securities will be decided after considering the prevailing political conditions, the economic environment (including interest rates and inflation), the performance of the corporate sector and general liquidity and other considerations in the economy and markets.

The AMC aims to approach various rating agencies for rating of the scheme. It will follow a two-way approach towards debt evaluation of the underlying issuer:

1. Financial Statement Analysis
   • Balance sheet analysis
   • Profit & Loss statement analysis
   • Cash flow analysis
2. Qualitative analysis by meeting the key officials of the company on periodic basis

Further, there is a thorough credit evaluation policy in place whereby the AMC aims to evaluate the underlying company on the qualitative parameters. The major factors under study will be outlook on the sector, strength & support of the parent, quality of management and overall financial strength of the credit as determined by key financial ratios
 

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Fund Manager Profile

Mr. Arvind Subramanian: He has over 7 years of experience. He is a Post Graduate Diploma in Management and B. E. (Electrical & Electronics Engineering). He currently works as an Associate Vice President. Prior to that, he has worked as a Senior Analyst at ICRA Limited.

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Fund Outlook

On evaluating the fund's investment objective and the current policy rate scenario ICOF is certainly a risky bet. Soon after the monetary policy was announced on February 8, 2017, debt yields shot up and have been rising ever since. The MPC changed the stance of the monetary policy to from accommodative to neutral while keeping the policy rate on hold to assess how the transitory effects of demonetisation on inflation and the output gap play out. So, it appears that the interest rate cycle has come a full circle.

Therefore, with the shift in monetary policy stance, we might be approaching the end of the policy rate easing cycle. In other words, unless there is a risk of missing the medium-term inflation target of 4.0% by a substantial margin, it is quite unlikely that the RBI will lower policy rates in the near future. This implies that to attract new and healthy borrowers, the banks and other financial institutions will have to set their lending rates prudently, to allow larger monetary policy transmission. Depending on the liquidity situation, banks will have to rationalise deposit and lending rates further.

In addition, the rise in the global yield and rising commodity prices are adding pressure on RBI's decision-making. The forthcoming fiscal stimulus by the US President Donald Trump is adding to the woes.

Hence, though ICOF might capture the highs of the current debt market the interest rate risk is still very high.

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DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014

About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr. Ajit Dayal with an objective of providing value-based information / views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

‘PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, it subsidiaries and its Directors.

Terms and condition on which its offer research report
For the terms and condition for research report click here.

Details of associates

1. Money Simplified Services Limited;
2. PersonalFN Insurance Services India Limited ;
3. Equitymaster Agora Research Private Limited;
4. Common Sense Living Private Limited;
5. Quantum Advisors Private Limited;
6. Quantum Asset Management Company Private Limited;
7. HelpYourNGO Private Limited;
8. HelpYourNGO Foundation;
9. QIEF Management LLC, Mauritius
10. Natural Streets for Performing Arts Foundation;
11. Primary Real Estate Advisors Private Limited;
12. Rahul Goel;
13. I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest
 

1. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company, except QIS receives fees for providing research to Quantum Equity Fund of Fund (QEFoF) which is Fund of Fund scheme managed by QMF and our associates has financial interest in the subject company.
2. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report.
3. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront /annualized & trail), if any, for any Schemes by QMF to QIS is also at arm's length and as per prevailing market practices.
    

Disclosure with regard to receipt of Compensation

1. Neither QIS nor it's Associates have any compensation from the subject Company in the past twelve months.
2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company in the past twelve months.
3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company in the past twelve months.
4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report
    

General disclosure

1. The Research Analyst has not served as an officer, director or employee of the subject Company.
2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.
    

Subject Company means Mutual Fund Schemes

Quantum Information Services Pvt. Ltd. 101, Raheja Chambers, 213, Nariman Point, Mumbai - 400021. Tel: +91 22 6136 1200
Website : www.personalfn.com CIN: U65990MH1989PTC054667

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Quantum Information Services Pvt. Ltd. Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 101 Raheja Chambers, 213, Free Press Journal Marg, Nariman Point, Mumbai 400021. Email: info@personalfn.com CIN: U65990MH1989PTC054667

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