With its aim to become a specialised debt fund house, Standard Chartered Asset Management is in the market with a short-term debt plan. The fund essentially offers fixed maturity plans, which seek to minimise interest rate volatility. Christened Grindlays Fixed Savings Scheme (GFSS), the fund is a closed-ended plan. With units on sale from March 22 to March 29, 2001, investors can participate in the current series with a minimum investment of Rs 10000.
The Investment Mandate
A 100% debt scheme, GFSS would invest in high quality corporate instruments and Government Securities, holding maturity equal to or less than the maturity of the fund. For instance, if you park investments in April 2002 plan, the fund would invest in instruments, which mature around April 2002.
Is this a short-term debt plan?
Yes, as far as maturity goes and No, as far as the choice of instruments go. While short-term debt funds largely invest in money market instruments – commercial papers, certificate of deposit and treasury bills, Grindlays FSS also holds the mandate to invest in dated corporate and government securities.
Returns and risk matrix
Returns earned by your debt fund largely depend on the interest rates in the economy. Further income from securities increases with maturity. On the other hand short-term debt plans invest in a basket of instruments, which hold lower portfolio maturity. Here then, under normal circumstances, the returns would be commensurate with the portfolio maturity.
However, the longer the maturity, more susceptible is the return to interest rate fluctuations. Here in, if you lock in your investment in securities whose maturity value is known, then you get a fair indication of the yield you would earn, if held till maturity. So, this investment works as an implicitly assured plan. However, if you end up redeeming the fund before maturity, then you expose your investments to market risk.
The plans available
The scheme comprises of five series and the AMC plans to launch a series every quarter commencing from March 2001 up to March 2002. Each series would have one or more plans of maturity ranging from slightly over a year to less than two years. Each of the plans would hold dividend and growth options.
The tax angle
All series have plans with maturity ranging from moderately over a year to less than two years. This enables the investor to avail long capital tax gains benefits. All investments in growth plans, whose initial investment and final redemption spans over three financial years, would help investors avail benefits of double indexation benefit (illustrated in the table below). On this count, GFSS scores over your regular fixed deposits which do not offer this facility to the investors.
Begin a closed-ended plan, the scheme encourages investments till maturity. However, it does offer repurchase facility during specified repurchase period, at the applicable NAV (declared on a weekly basis). However, exit will come at a penal load to discourage pre-mature redemption.
The track record
Grindlays FSS is the third in the series of plans managed by Standard Chartered AMC. Launched in July 2000, Grindlays Super Saver Income is the flagship fund from the AMC. A medium term debt fund, it has posted a return of 9.10% since launch, on the back of triple A heavy portfolio. The fund has actively sought to augment returns by managing interest rate risk associated with debt instruments. With this, the fund has posted a return of 8.28% in the last six months, which compares favorably with the category average of 7.57% over the same period.
Grindlays Fixed Savings Scheme is essentially a niche product, which seeks to strike the balance between assets and liabilities. If you are short term investor, who is just looking for a parking lot for his money before it meets its final objective, stay away from GFSS. For its load structure, the fund is too expensive for a short-term investor. Here an open-ended short-term debt fund will fit your bill. However, if the need for that extra cash falls in line with the plan's maturity spectrum, then take a call on the fund.