Transcript Slide 1
DEBT FUND ANALYSIS DEBT FUND ANALYSIS Jun 16, 2008 – Jun 30, 2008 DEBT FUND ANALYSIS Debt Market Update Market movements Liquidity was tight and to make the situation worse, the RBI hiked the repo rate by 25bps RBI increased the repo rate from 7.75% to 8%; the daily limit for open market operation in oil bonds was also raised from INR 1,000 crores to INR 1,500 crores Annual inflation for the week ended May 31 is 8.75%. This is higher than the previous week’s number of 8.24% Inflation has reached the seven-year high; it was at 8.77% on February 10, 2001. Debt Market Outlook It has liquidity liquidity in some been observed that in reporting weeks is ample. Considering the current scenario, is expected to be sufficient. This can result buying in G-Secs Two factors that direction are: will influence bond market Dollar movement: Any inflationary number or comment in the US is expected to result in dollar appreciation, which can push INR/USD close to the 43-level. The RBI will have to intervene to sell the dollar, thus tightening liquidity Ease in crude prices: This will provide some relief and push up bond Liquidity/borrowings: Liquidity was tight and the average money borrowed during the week from the repo window was INR 12,000 crores Tight liquidity also pushed up the weighted average O/N money market rates to 7.68%, compared to the previous week’s 5.96% Debt Portfolio Strategy Liquid Plus Funds are still a safer bet from a short term (3-6 months) horizon Fixed Maturity Plans to offer better returns as the short term rates to yield higher G-Secs, non-SLR, and OIS yields headed north. One-year OIS moved up by 45bps, one-month CD rates have increased by 70bps, and one-year CD’s have gone up by 23bps 2 DEBT FUND ANALYSIS Recommended Debt MF Categories Liquid Plus Funds: These funds have favorable portfolio composition. These funds are expected to invest close to 40% on higher side and 25% on the lower side in Corporate Bonds with maturity above 1 year These funds are able to take advantage of rise in Overnight rates and also increase the portfolio yield by taking call in high duration bonds. In the current scenario where overnight rates are expected to remain high and yields on corporate bond to ease slightly from current levels. These funds are better positioned to take advantage of both the scenarios These funds provide an indirect bet on Short to Medium term bonds. In case of 100% investment in these bonds an investor can be subject to mark to market compulsion and any rise in rates is likely to hurt the return on investment. However, with investment in Liquid Plus Funds an investor can take advantage of spread investment strategy of these funds These funds are treated as an income fund and are exempt from the rise in Dividend Distribution Tax. Old rate of Dividend Distribution Tax is applicable to these funds 3 DEBT FUND ANALYSIS 4 DEBT FUND ANALYSIS 5 DEBT FUND ANALYSIS 6 DEBT FUND ANALYSIS Recommended Schemes in Liquid Plus Funds Liquid Plus Funds – Retail & Institutional DWS Money Plus Fund ICICI Prudential Flexible Income Plan LIC Liquid Plus Fund Reliance Liquid Plus Fund 7 DEBT FUND ANALYSIS 8 DEBT FUND ANALYSIS 9 DEBT FUND ANALYSIS 10 DEBT FUND ANALYSIS 11 DEBT FUND ANALYSIS Recommended Debt MF Categories Fixed Maturity Plans: Product with various maturities FMPs are available with numerous maturity options –1 month, 3 months, 6 months, 1 year, 3 years and 5 years. One can invest in the relevant plan depending upon his investment horizon and the requirement of cash flows on maturity Minimal risk Unlike debt funds, which are exposed to three kinds of risks viz. interest rate, credit and liquidity risk, FMPs are a better option FMPs are least exposed to interest rate risk as the fund manager holds the instruments till maturity getting a fixed rate of return. Thus FMP can manage to get a specific interest on these instruments and investors have a fair idea about it. This helps investors tailor their investments as per their future cash requirements They primarily invest in AAA, P1+ or such kind of good rated credit instruments with maturity profile of the securities in line with the maturity of the plan so there is also low credit risk with minimal liquidity risk involved Tax Efficient Returns FMPs yield competitive & tax efficient returns as the tax rates on a FMP are comparatively lesser than the tax rates in other debt funds 16 Please find linked here the Edelweiss Fund Tracker file. DEBT FUND ANALYSIS 17 DEBT FUND ANALYSIS Contact Details Edelweiss Securities Ltd 11th Floor, 1101 A&B Godrej Coliseum Off Eastern Express Highway, Sion (E) Mumbai – 400022 Ph: +91 22 4088 5757 Edelweiss Securities Ltd 2nd Floor, Savitri Towers, 3A Upper Wood Street, Kolkata – 700017 Ph: +91 33 4010 4646 Edelweiss Securities Ltd 10th Floor, Hindustan Times House, 18-20, Kasturba Gandhi Marg, New Delhi - 110001 Ph: +91 11 4367 1111 Edelweiss Securities Ltd 1st Floor, Plot No. 4009, 100 ft Road, HAL II Stage, Bangalore – 560008 Ph: +91 88 4150 1214 Edelweiss Securities Ltd 10th Floor, Arcadia, Nariman Point, Mumbai – 400021 Ph: +91 22 4097 9400 Information/Sales: +91 22 4097 9400 [email protected] 18 DEBT FUND ANALYSIS Disclaimer This document has been prepared by Edelweiss and is strictly confidential and is intended for the use by recipient only and may not be circulated, redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Edelweiss. Receipt and review of this document constitutes your agreement not to circulate, redistribute, retransmit or disclose to others the contents, opinions, conclusion, or information contained herein. In the preparation of the material contained in this document, Edelweiss has used information that is publicly available, including information developed in‐house Information gathered & material used in this document is believed to be from reliable sources and is given in good faith. Edelweiss however does not warrant the accuracy, reasonableness and/or completeness of any information. For data reference to any third party in this material no such party will assume any liability for the same. Edelweiss and/or any affiliate of Edelweiss does not in any way through this material solicit any offer for purchase, sale of any financial transaction/commodities/products of any financial instrument dealt in this material. All recipients of this material should before dealing and or transacting in any of the products referred to in this material make their own investigation, seek appropriate professional advice. The investments discussed in this material may not be suitable for all investors. Any person subscribing to or investigating in any product/financial instruments should do so on the basis of and after verifying the terms attached to such product/financial instrument. Edelweiss (including its affiliates) and any of its officers, directors, personnel and employees, shall not be liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, and consequential, as also any loss of profit in any way arising from the use of this material in any manner. The recipient alone shall be fully responsible/are liable for any decision taken on the basis of this material. Edelweiss has included statements/opinions/recommendations in this document which contain words or phrases such as “will”, “expect”, “should” and similar expressions or variations of such expressions, that are “forward looking statements”. Financial products and instruments are subject to market risks and yields may fluctuate depending on various factors affecting capital/debt markets. Please note that past performance of financial products and instruments does not necessarily indicate the future prospects and performance thereof. Actual results may differ materially from those suggested by the forward looking statements due to risks or uncertainties associated with our expectations with respect to, but not limited to, exposure to market risks, general economic and political conditions in India and other countries globally, which have an impact on our services and/or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or rates or prices, the performance of the financial markets in India and globally, changes in domestic and foreign laws, regulations and taxes and changes in competition in the industry. By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated. Edelweiss (including its affiliates) or its officers, directors, personnel and employees, including persons involved in the preparation or issuance of this material may; (a) from time to time, have long or short positions in, and buy or sell the securities mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation in the financial instruments/products/commodities discussed herein or act as advisor or lender/borrower in respect of such securities/financial instruments/products/commodities or have other potential conflict of interest with respect to any recommendation and related information and opinions. The said persons may have acted upon and/or in a manner contradictory with the information contained here. This document is intended to be used only by resident Indians, non‐resident Indians, persons of Indian origin, subject to the applicable laws and regulations of any Indian or foreign regulatory authority. This document should not be regarded as solicitation of business in any jurisdiction including India. Mutual Fund investments are subject to market risk please read the offer document carefully before investing.