Religare Bank Debt Fund (RBDF)

An open-ended short term debt fund which intends to generate optimal returns by predominantly investing in debt securities issued by banks.

Summary

Type	Open-ended Debt scheme	Face Value	Rs 1,000
Min. Investment: Additional Investment:	Rs 5,000 and in multiples of Re 1 thereafter Rs 1,000 and in the multiples of Re 1	Benchmark Index	CRISIL Short Term Bond Fund Index
Entry Load	Nil	Exit Load *	Nil
Monthly SIP	Rs 1,000 per month and in multiples of Re 1 thereafter	Expense ratio:	2.25%
Issue Opens	December 10, 2012	Issue Closes	December 24, 2012

Investment Objective*

The primary investment objective of the scheme is, "to generate optimal returns by investing in a portfolio of debt & money market instruments issued primarily by banks. However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved. The Scheme does not assure or guarantee any returns."

 

*Source: Scheme Information Document

Is this fund for you?

Short-term income funds are debt funds, investing in fixed income instruments having shorter maturity of 1 year to 3 years. These funds emphasise on providing a steady and regular flow of income while lower interest rate volatility over a period of time. Short term income funds are sensitive to interest rates and tend to witness fluctuation typically in the rising interest rate scenario; however the impact of the fluctuation fades out over a period of time. Since they are ideal for parking short term funds preferably in the falling interest rate scenario, they may turn out to be hazardous in the rising interest rate scenario.

Religare Bank Debt Fund (RBDF) is one such short-term income fund from the stable of Reliagre Mutual Fund. The timing of launch seems to be appropriate to invest in short term income funds. At present, the sentiment in the debt market remains optimistic even after the status quo maintained by RBI in its 3rd quarter mid-review. At the review conducted on December 17, 2012, along with Repo and Reverse Repo; the CRR has also been kept unchanged. However, the markets have shrugged off this event as the forward looking guidance given by RBI looks promising and there is a high probability that we might see a rate cut in the 4th quarter (January-March) of FY 2012-13. At present, liquidity situation in the system remains tight and daily borrowing by banks under Liquidity Adjustment Facility (LAF) window has been averaging constantly above the comfort zone of RBI (Rs. 60,000 crore). While this has been partially addressed by the liquidity released by re-purchase of bonds by RBI; the gap is too wide to be bridged with Open Market Operations (OMOs). Owing to liquidity deficit in the system; short term and ultra-short term securities would be in demand and may yield higher returns thus making investment in income funds attractive.

Portfolio Strategy

With a mandate to generate stable returns by investing predominantly in debt & money market instruments issued by banks, RBDF intends to maintain high credit quality and liquidity by investing atleast 70% the net assets of the scheme in securities rated AAA/A1+ and equivalent. As a matter of maintaining high credit quality, the fund shall not invest in securities rated below AA- or equivalent.

Some of the instruments in which RBDF will invest are:

• Certificate of Deposit (CD) of scheduled commercial banks and public financial institutions
• Securities issued by Public Financial Institutions (PFI Bonds) (upto 30% of net assets)
• Treasury Bill (T-Bill)
• Securities created and issued by the Central and State Governments (G sec)
• Collateralised Borrowing and Lending Obligation (CBLO)
• Units of debt and liquid mutual funds

The fund may also invest in derivatives.

Moreover the investment team of the AMC will carry out rigorous in depth credit evaluation of the money market & debt instruments proposed to be invested in. The credit evaluation will essentially be a bottom up approach and include a study of:

• The operating environment of the issuer;
• Past track record as well as the future prospects of the issuer; and
• Short-term / long-term financial health of the issuer.

Asset Allocation Pattern

Instruments	Allocation Range	Risk Profile (High / Medium / Low)
Debt & Money Market Instruments issued by banks	80%-100%	Low to Medium
Securities issued by public financial institutions, CBLO, Repo, T-Bills, Units of debt and liquid mutual fund schemes and Government Securities. *	0%-20%	Low

* Investment in mutual fund units will be restricted to 10% of the net assets of the scheme. The total exposure of the Scheme in a particular sector (excluding investments in Bank CDs, CBLO, G-Secs, T-Bills and AAA rated (or equivalent) securities issued by Public Financial Institutions and Public Sector Banks) shall not exceed 30% of the net assets of the scheme. The Scheme will not invest in securitized debt. Further, the Scheme will not participate in repo in corporate debt securities.

(Source: Scheme Information Document)  

Fund Manager Profile

The fund will be managed by Mr Nitish Sikand, a fund manager at Religare Mutual Fund. He is a commerce graduate and holds a master’s degree in Business Administration with Finance being his specialisation. He has a total work experience of more than 10 years in managing fixed income assets. Prior to joining Religare Mutual Fund, Mr Sikand has worked with ICICI Banks and JM Mutual Fund. He also has a stint with Citicorp Maruti Finance Ltd.

 

Fund Outlook

Since the fund is being launched when the interest rates are set to fall and liquidity albeit temporarily, remains tight; it may perform well. RBDF, being a short term income fund would majorly invest in papers with a maturity profile of 1-3 years. Interest rate sensitivity of the fund would be higher than that of an ultra-short term fund but would be lower than that of a long term income fund. On the flip side, its expense ratio may exceed 2% if the fund fails to raise a corpus of Rs 1,000 crore. Higher expense ratio would eat into investor’s returns.
 

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