Governed by Domestic Macro Factors | Value Research Lakshmi Iyer, Head - Fixed Income, Kotak MF, tells us about their investment criteria while building a debt portfolio...

Governed by Domestic Macro Factors

Lakshmi Iyer, Head - Fixed Income, Kotak MF, tells us about their investment criteria while building a debt portfolio...

Our investment criteria when constructing a debt portfolio apart from credit rating looks into the liquidity of the underlying asset says Lakshmi Iyer, Head of Fixed Income and Product, Kotak Mutual Fund.

Which debt fund would you suggest to an investor now?
A lot would depend on the risk appetite and investment horizon of the investor. Current macro situation warrants stable or benign interest rates for a good part of 2013. In such a scenario we believe actively managed long duration funds would likely do well. This would be ideal for investors with 1 to 2 year investment horizon. But interest rates volatility would be inherent to such funds. Hence, those seeking to mitigate such volatility could look at fixed maturity plans of similar tenor. Falling interest rate scenario tends to benefit duration strategies the most. Depending on the tenure of investments, one could look at long duration or short-term duration strategies.

Should investors start investing in long-term debt funds?
Given that the monetary policy balance is also shifting in favour of growth and trajectory of inflation seems to be on a downward trend in the near term – there is a case for interest rates to soften from these levels. Also, post the recent monetary policy on January 29, 2013, yields have backed up a bit. This we feel is a good opportunity for investors to gain exposure to long-term debt funds with minimum of one year horizon.

What exit strategy should one adopt in a debt fund in a falling interest rate scenario?
The exit strategy would hinge on two key factors — what is the redeployment opportunity available and assessment of turn in interest rates. One should evaluate these factors from time to time to decide on the exit. It is very for investors to exit in a falling interest scenario. Hence one should exercise discipline and be guided by an advisor or the fund house as the case maybe in terms of direction of interest rates.

What is your fixed income strategy, especially for short- and long-term bond funds?
On the short-term funds, we are largely focused on creating a quality portfolio of corporate bonds which offer a ride on interest rate moves and also offer stability in the form of relatively higher accruals vis-à-vis government securities. Long bond funds for us are an active play on interest rates. The corporate bond allocation is core to the fund and the G-sec allocation is increased or decreased in line with interest rate view. Thus, our long duration bond fund is actively managed.

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