The creatively-named All Seasons Bond Fund is a new offering from the only pure debt fund house in India, Standard Chartered. Basically, this new product is a Fund of Funds (FoFs) that will invest in its existing debt schemes depending on the interest rate outlook. The fund's initial offer is open for subscription from August 9 to August 27, 2004. According to the AMC, this new product is designed to take away investors' challenge of monitoring the interest rate environment and subsequently allowing the luxury of staying invested without the associated volatility.
Since Standard Chartered All Seasons Bond Fund seeks to provide good quality returns under all market conditions, the fund, from time to time, would switch into the most appropriate set of funds suited for that particular type of environment. Thus, the fund would work on an asset allocation model instead of picking only one type of debt fund thereby reducing risk. For this purpose, the AMC has classified all its existing schemes into three broad categories - Passive Funds, Active Management Funds and Accrual Funds.
The Passive Funds category includes income, short-term and gilt funds. The dynamic bond and medium-term funds have been clubbed together under the Active Management Funds category. And the Accrual Funds category comprises of cash, short-term floating and long-term floating rate funds.
In falling interest rate environment, the fund would tentatively invest 70 per cent of its assets in Passive Funds and the rest in Active Funds. If the interest rate is expected to be stable, the fund's asset allocation will be – 20 per cent in Passive short-term funds, 70 per cent in Active Management Funds and 10 per cent in Accrual Funds. And in case the rates are about to rise, the fund's portfolio will fully comprise of Accrual Funds.
The biggest advantage of any FoF is the tax benefit. As FoF is also a mutual fund scheme, it does not have to pay capital gains tax on its trading activities. Thus tax efficiency on account of re-balancing is higher than if one followed a do-it-yourself approach.
Standard Chartered All Seasons Fund is an ideal debt investment for investors, who don't have the time or ability to actively track their investments to get the best returns. Interestingly, the fund house also manages Dynamic Bond fund, whose investment strategy is on the same line as that of the current All Seasons Bond Fund. May be, the new launch is targeted more towards raising AUM. Mutual funds collect more money in IPOs and larger the AUM, more profitable the business it is. Otherwise, why would any fund house launch something that it already has?
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