An Open Ended Dynamic Bond Fund having flexibility to invest across maturities.

Summary

Type	Open-ended Debt scheme	Benchmark Index	CRISIL Composite Bond Fund Index
Min. Investment: Additional Investment: SIP:	Rs 5,000 In multiples of Re 1 Min Rs 1,000 for 12 months SIP; Rs 3,000 for quarterly SIP	Face Value	Rs 10 per unit
Entry Load	Nil	Exit Load *	0.50% < 3 months 0.25% > 3 months and upto 6 months Nil thereafter
Issue Opens	January 23, 2012	Issue Closes	February 06, 2012

Investment Objective*

The primary investment objective of the scheme is to actively manage a portfolio of good quality debt as well as money market instruments so as to provide reasonable returns and liquidity to the investors.

However, there can be no assurance that the investment objective of the scheme will be achieved.

 

*Source: Scheme Information Document

Is this fund for you?

Dynamic bond funds are a kind of medium to long term income funds having flexibility to invest in fixed income instruments with varying maturity i.e. they can invest in a mix of short term as well as long term debt instruments. These funds emphasize on generating attractive returns in the long term by riding the entire interest rate cycle, while evading interest rate volatility over a period of time. 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.

Union KBC Dynamic Bond Fund (UKDBF) is one such medium to long term income fund from the stable of Union KBC Mutual Fund. Union KBC Mutual Fund is relatively a new player in the Indian mutual fund industry (it launched its first mutual fund scheme, an equity diversified one on May 20, 2011).

The timing of the launch of this fund seems quite appropriate as interest rates have almost peaked out. UKDBF is positioned to invest across all classes of debt and money market instruments with no cap or floor on maturity, duration or instrument type concentrations. The Fund manager will dynamically manage the fund’s portfolio maturity profile based on the prevailing interest rate scenario and conditions in the debt market.

 

Portfolio & Investment Strategy

UKDBF investments in an appropriate mix of high quality money market, debt and Government securities will be guided by fundamental research and analysis, ratings assigned by domestic credit rating agencies and macroeconomic factors. In addition, the investment team of the AMC will carry out an internal in-depth credit evaluation of securities proposed to be invested in. The credit evaluation of the securities will essentially be a bottom up approach and include financial statement analysis, a study of the operating environment of the issuer, the past track record as well as the future prospects of the issuer and the short term / long term financial health of the issuer, prospects of the industry.

Moreover the investment team of the AMC will continuously monitor and review the macroeconomic environment including:

 

• Political and economic factors
• Money supply in the system
• Government borrowing programme
• Demand and supply of debt instruments and
• Credit pick up


 

Asset Allocation Pattern

Asset Class	Allocation Range
Debt* Instruments including Government Securities and Corporate Debt	0%-100%
Money Market Instruments	0%-100%

*Investments in securitized debt including Pass Through Certificates (PTCs) not to exceed 25% of the net assets of the Scheme as at the time of purchase.

 

The Scheme retains the flexibility to invest across all classes of debt and money market instruments with no cap or floor on maturity, duration or instrument type concentrations. The Fund will dynamically manage the portfolio maturity profile based on the current market condition. Since the intention of the Scheme is to dynamically manage the asset allocation, the percentages of asset allocation would change depending on view on interest rates as well as the level of corporate spreads prevailing at the time of investment and also the availability of different assets at different point of time. Also the total debt derivative exposure will be restricted to 50% of the net assets of the Scheme. The Scheme shall not invest in equity derivatives. Investment in derivatives shall be for hedging, portfolio balancing and such other purposes as maybe permitted from time to time.

 

Fund Manager Profile

Mr. Parijat Agrawal is the Head – Fixed Income at Union KBC Mutual Fund. He is a Bachelor of Engineering (Electronics & Communications) and has also to his credit PGDBM (IIM – Bangalore). He has over 15 years of experience in fund management.

Prior to joining Union KBC Mutual Fund, Mr. Parijat Agrawal has been associated with SBI Mutual Fund as Head – Fixed Income with responsibilities of Portfolio Management of Fixed Income and Hybrid Funds, State Bank of Mauritius Limited with responsibilities of managing the entire Treasury functions of the Bank and SUN F&C Asset Management as Fund Manager responsible for Portfolio Management of Fixed Income and Hybrid Funds.

 

Fund Outlook

Given that UKDBF will adopt a dynamic approach of investment in debt and money market instruments with no cap or floor on maturity, duration or instrument type concentrations and also the apt timing of the launch; it is theoretically well placed to benefit from the expected change in the interest rate scenario in the country. Currently the interest rate in India has almost peaked out and we may soon witness a cut in interest rate. Also, income funds are an ideal avenue to park one’s medium to long term funds in a constant and falling interest rate scenario as in such a situation the yields may not move up further and start softening, which will boost the performance of medium to long term income fund as they gain from increases in bond prices.

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