NFO Review: JPMorgan India Corporate Debt Opportunities Fund
Sep 16, 2014

Author: PersonalFN Content & Research Team

A fund that endeavours to generate regular income and opportunities for capital appreciation by investing in predominant portion of its assets in debt securities.

Summary

Type	An open-ended income scheme	Benchmark Index	CRISIL Short Term 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 (Subject to a minimum of 6 SIP instalments of Rs 1,000 each) For Systematic Transfer Plan (STP) -> Rs 1,000 (Subject to a minimum of 6 SIP instalments of Rs 1,000 each in case of monthly or quarterly SIP) For Systematic Transfer Plan (STP) -> Rs 1,000, while minimum number of units shall be 100 units, whichever is less	Plans: Options offered:	Direct; and Regular Growth Option Dividend Option Bonus
Face Value	Rs 10 per unit	Expense Ratio:	Upto 2.25%*
Entry Load	Nil	Exit Load:	- If redeemed with 18 months from the date of of allotment in respect of purchase made other than through SIP; and If redeemed within 18 months from the date of allotment of units of each installment of SIP purchase: 1.50% - If redeemed after 18 months but within 36 months from the date of allotment in respect of purchase made other than through SIP; and If redeemed after 18 months but within 36 months from the date of allotment of units of each instalment of SIP purchase: 0.50% - If redeemed after 36 months from the date of allotment in respect of purchase made other than through SIP; and If redeemed after 36 months from the date of allotment of units of each instalment of SIP purchase: Nil
Issue Opens	September 08, 2014	Issue Closes:	September 17, 2014

*Direct Plan shall have a lower expense ratio to the extent of distribution expenses / commissions which is charged in the regular Plan

Investment Objective*

The investment objective is to generate regular income and opportunities for capital appreciation while maintaining liquidity through active management of a diversified portfolio comprising of corporate bonds and securities across the investment grade credit rating and maturity spectrum.

However, there can be no assurance that the investment objectives of the Scheme will be realized.

*Source: Scheme Information Document

Is this fund for you?

JPMorgan India Corporate Debt Fund (JICDF) is a debt oriented mutual fund scheme from the stable of JPMorgan Mutual Fund, which would be investing a predominant portion of its assets in corporate bonds and debt securities (including securitised debt not exceeding 50% of the net assets of the scheme), while a small portion in debt and money market instruments in order to manage liquidity requirements. JICDF intends to hold debt papers across the maturity spectrum, thereby taking an active view on interest rates, liquidity condition and other macroeconomic factors affecting the interest rates.

At present, the yield of India's new 10-Year benchmark (8.40% 2024 G-Sec) is trading in a narrow range of 8.50% - 8.55%.

You see, while CPI inflation for August 2014 (data released in September 2014) has mellowed down to 7.80% from 7.96% in the month prior, food inflation continues to exert pressure as it rose to 9.42% in August 2014 from 9.36% in the month prior. This stickiness in inflation may therefore not allow the Reserve Bank of India (RBI) to be accommodative in its stance and thus the central bank may maintain a status quo on policy rates in its ensuing 4th bi-monthly monetary policy statement (scheduled on September 30, 2014). The central bank would instead prefer to watch the official data on monsoon and how it transpires on retail food prices as prices remain high precipitated by cereals, vegetables, fruits and milk products. While international crude oil prices have softened, that may not nudge the RBI to cut policy rates due its diminutive weightage in the retail inflation index. Also that the U.S. Federal Reserve is preparing for an interest rate hike, RBI would hold onto its policy rates at least until the outcome of these actions are certain.

Hence, still some risk remains from inflation, but other macroeconomic variables are improving. While the fiscal deficit for the first four months of the fiscal year has already touched 61.2% of the Budget Estimate (BE) of Rs 5.31 lakh crore for 2014-15, the decision of RBI to transfer the surplus amounting to Rs 52,679 crore (which is 60% more than that transferred last year) for the year ending June 30, 2014 to the Government may come to rescue in managing the fiscal deficit and adhere to the target of 4.1% of GDP set for the current fiscal year. Also, with the Union Cabinet having cleared a dilution of Government stake in ONGC Ltd. (to the tune of 5.00%) Coal India Ltd. (to the tune of 10.00%) and NHPC Ltd. (to the tune of 11.38%) may help the Government in meeting its fiscal deficit target as the market is in a phase of exuberance. You see, to boost retail investors' participation in its disinvestments, the Government is planning to offer them discounts, besides a quota of up to 20% for small investors (i.e. those bidding for up to Rs 2 lakh). And it is noteworthy that all of these issues are likely to tap the market through the offer-for-sale (OFS) route, which is considered more convenient and less time-consuming than follow-on offerings (FPOs). You see, adhering to fiscal deficit target and managing it smartly could also nudge rating agencies to upgrade India's sovereign rating by a notch.

As far as economic growth is concerned, although the Q1FY15 GDP growth rate reported an uptick of 5.7% after languishing for long, the buoyancy of such an upbeat data is yet to be seen while the NDA Government is taking steps to reinvigorate growth.

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 a reversal in interest rates can be seen. Such an environment would be conducive for JICDF to build its portfolio provided enough care is indeed taken in the credit evaluation policy, credit research and economic research.

However JICDF 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

In the endeavour to meet its investment objective JICDF will be actively managed taking a view on:

Interest rate movements
Liquidity conditions; and
Other macroeconomic factors affecting interest rates

The Scheme would seek to identify and invest in quality credits that offer an attractive risk-return reward relative to sovereign instruments with the objective to generate accrual income or in yield pickups which offer a better spread for similar credits. Potential capital appreciation opportunities arising out of mispricing of yields relative to fundamentals, potential credit upsides (both short term and long term ratings), sector rotations etc. will also be explored. The overall duration of the portfolio will also be actively monitored depending on the interest rate environment.

The Fund manager will adopt a long duration strategy in a falling interest rate scenario and shift towards a low duration strategy in rising interest rates scenario, as the interest rates bottoms out / trends upwards. Moreover, the fund manager will structure the portfolio looking into the need to provide liquidity to meet redemptions as and when they arise.

As far as portfolio turnover of JICDF is concerned, it will be a function of market opportunities. Portfolio turnover will depend upon the circumstances prevalent at any time and would also depend on the extent of volatility in the market and inflows/outflows in the scheme. The fund house endeavours to optimise the portfolio turnover to optimise risk-adjusted return keeping in mind the cost associated with it.

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

Instruments	Allocation Range (%)		Risk Profile High/Medium/Low
Instruments	Minimum	Maximum	Risk Profile High/Medium/Low
Corporate bonds and securities ^ including securitized debt instruments*	80	100	Low to Medium
#Other Debt and Money Market Instruments	0	20	Low

^ Corporate bonds are debt obligations issued by public and private corporations. Corporate securities exclude Government securities and SDL.
*Investment in Securitized Debt not to exceed 50% of the net assets of the Scheme.
# Investments would be made in CPs, CDs, NCDs and Bonds of Corporates, PSUs, Banks and Financial Institutions. The Scheme will take exposure to debt across the investment grade rating spectrum. The Scheme will not take exposure to T-Bills or Government Securities.
(Source: Scheme Information Document)

JICDF will benchmark its performance against the CRISIL Short Term Bond Fund Index. The said index tracks the performance of debt portfolios that include constituents such as Government securities, AAA/AA rate corporate bonds, Commercial Papers (CPs) and Certificate of Deposits (CDs).

Fund Manager Profile

The fund will be managed by the duo - Mr Namdev Chougule and Mr Ravi Ratanpal.

Mr Namdev Chougule has a total work experience of 13 years, of which 10 years has been in the financial services sector as a dealer, analyst, and fund manager. He has served at several leading mutual funds and banks. Prior to joining JPMorgan Mutual Fund, Mr Chougule was with Lotus India Asset Management Company Private Ltd. (now bought over by Religare Mutual Fund) as Fund Manager - Fixed Income and prior to that with JM Financial Asset Management Company Ltd. He has to his credit a degree in engineering [B.E. (Elect)], a Master Degree in Management Studies (MMS), a CFA charter and has also passed Financial Risk Managers examination conducted by the Global Association of Risk Professionals. At JPMorgan Mutual Fund, Mr Chougule manages JPMorgan India Liquid Fund, JPMorgan India Treasury Fund, JPMorgan India Short Term Income Fund, JPMorgan India Active Bond Fund, JPMorgan India Capital Protection Oriented Fund, JPMorgan India Fixed Maturity Plans, JPMorgan India Hybrid Fund Series 1, JPMorgan India Income Fund - Series 301, JPMorgan India Income Fund - Series 501, JPMorgan India Banking & PSU Debt Fund and JPMorgan India Government Securities Fund along with being a fund manager for overseas fund of fund schemes.

Mr Ravi Ratanpal has a total experience of 10 years in debt side of the capital markets. Prior to joining JPMorgan Mutual Fund he was a part of JPMorgan Investment Banking Research Team. Mr Ratanpal has to his credit a Bachelor's Degree in Commerce (B.Com) and holds a MBA degree with specialisation in finance. He is also a certified Financial Risk Manager (FRM) from Global Association of Risk Professionals. At JPMorgan Mutual Fund, he co-manages JPMorgan India Liquid Fund, JPMorgan India Treasury Fund, JPMorgan India Short Term Income Fund, JPMorgan India Active Bond Fund, JPMorgan India Capital Protection Oriented Fund, JPMorgan India Fixed Maturity Plans, JPMorgan India Hybrid Fund Series 1, JPMorgan India Income Fund - Series 301, JPMorgan India Income Fund - Series 501, JPMorgan India Banking & PSU Debt Fund and JPMorgan India Government Securities Fund.

Fund Outlook

As mentioned earlier, JICDF is launched at a time when the yields at the longer end of the yield curve have a softened a little after remaining elevated for quite some time. Likewise short term yields have also mellowed a bit with liquidity condition being fairly stable.

Positive undertones are set in with an uptick in economic growth, narrowing in trade deficit, relatively stable Indian rupee, achievable fiscal deficit target and hopes that the Modi-led-NDA Government to take in India path to high economic growth. So, such a scenario is turning conducive and encouraging enough for fund managers to take exposure to medium to longer end of the maturity curve although there is yet some risk from inflation due to stickiness in food prices. But a thorough assessment of credit evaluation process, credit research and economic research would determine how JICDF fares.

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