Fund Manager's Wisdom - Debt

Vishal Dalal

Age: 38 years

Qualification: MBA in Finance from South Gujarat University

Current Position: Senior Vice President

Funds Managed

• Concept Dignity (Debt)

 Holdings

Stock	Weightage (%)
Templeton India Income Builder-G	33.33
Templeton India Corporate Bond Opportunities Fund	33.33
IDFC SSI Medium-term Plan A-G	33.33

INVESTMENT PHILOSOPHY FOR DEBT

• RBI is a the most important determinant of bond market and therefore we try and understand the parameters which are the focus of attention for RBI.
• We invest in debt through Mutual Funds owing to favorable tax benefits and also to achieve exposure to various securities where it is difficult to get direct exposure such as Government bonds.

OUR OUTLOOK FOR BOND MARKET

• According to RBI, inflation is expected to be around 5.5% for FY2014 which is very comforting as it lead to deterioration of wealth in any economy. As inflation comes down, there will be pressure on RBI to cut rates which will lead to capital gains on existing high yielding bonds.
• A subdued expected growth in FY2014 also support our earlier argument about lower interest rates being benefial for bond holders in more ways then one.
• We believe that even current account deficit will be lower than RBI estimate and hence we expect overnight rate to be aroud 6.0% by the end of FY2014 as against 7.25% at present.
• We believe RBI is behind the rate cutting curve and any acceleration on that front will lead to smart returns for investors. Our range of expected return will be high single digit to low double digit return in next 1 year.

OUR ADVICE TO INVESTORS

Although, equity and other investment instruments should also be a part of one’s asset allocation in the longer term, in the current scenario debt instruments have become more attractive than ever due to their dual capability of providing tax efficient returns while at the same time providing portfolio diversification. Also, companies are coming up with very attractive coupon rate for their NCDs which apart from their attractive yield also generate good capital gains as most of these NCDs are also traded in secondary market.