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Debt Funds with a Twist

In the coming times, some interesting new debt funds are expected to come out

Since the start of this year, 18 mutual funds have filed offer documents with the Securities and Exchange Board of India (SEBI). Out of these, 10 of them are debt oriented. But all are not conventional liquid funds, interval funds or fixed maturity plans. This time there are some interesting offers available — Tata PSU Bond Fund, Tata Triple Ace Fund and DBS Chola Select Income Fund — Flexi Debt and Regular Debt Plans, to name a few. The plans from Tata Mutual Fund have a strong focus on safety and risk aversion.

The name itself being self explanatory, the Tata PSU Bond Fund proposes to invest primarily in debt instruments issued by domestic Public Sector Undertakings (PSUs). The obvious rationale is to minimise the credit risk of counterparty default as debt instruments issued by PSUs are generally considered to be of better credit quality and safe for timely servicing of debt obligations. Interestingly, the fund also intends to have up to 35 per cent exposure in foreign debt.

Presently, exposure of various debt schemes to PSUs account for only 28.5 per cent of the total debt investment. This data is as on February 28, 2009 out of the 30 fund houses whose data is currently available.

Tata Triple Ace Fund, on the other hand, would focus on the credit rating of instruments in which they will invest in, which would be either AAA/P1 or its equivalent.

The third offering by DBS Chola Mutual Fund offers two different investment plans under the same scheme — Flexi Debt and Regular Debt. Both the plans have distinct asset allocation and will maintain different portfolios. The Flexi Debt plan will have a flexible asset allocation where its allocation to either, government securities, corporate debt or money market instruments, can range between 0 and 100 per cent. The Regular Debt plan can have a 100 per cent exposure in corporate debt and up to 60 per cent in government securities as well as money market instruments.