SEBI’s directive on categorisation and rationalisation of mutual fund schemes has led to substantial changes in the mandate and portfolio of many debt funds. While this has made past comparisons difficult, over a period of time, SEBI’s rigid categorisation could make fund selection easier for investors with a specific risk profile and investment horizon.
Within the debt category in particular, SEBI has come out with 16 pre-set categories based on rigid duration and credit risk mandates.
Short-duration category funds require investment in debt instruments with a duration (Macaulay) of 1-3 years.
If you have a low-to-moderate risk appetite, with a similar investment horizon, short duration funds that carry lower interest rate risk offer just the solution.
Aditya Birla Sun Life Short Term Opportunities Fund has been a steady performer, delivering 7.3 per cent annual returns since inception.
While the lower duration mitigates the rate risk, following an accrual strategy helps rake in returns through accrual of interest on the bonds in the portfolio. The fund has invested 30-40 per cent in lower AA rated bonds, and hence, the recent rise in corporate bond yields offer a good opportunity for investors to cash in.
The fund has maintained its average maturity at 1-3 years in the past, similar to the newly laid-down mandate. This makes comparison with past performance easier.
Consistent performance
On that count, the fund has consistently delivered above-category returns across time periods and rate cycles. In the good years of 2014 and 2016, it delivered 11.3 per cent returns.
Even in the lacklustre 2015 market, the fund managed healthy 8.4 per cent return.
Over the past one year, though, the fund’s return at 4.3 per cent is lower than some of the other top-performing funds within the category.
A relatively higher exposure to low-risk, low-return AAA rated debt instruments, vis-a-vis others, could be one reason for its underperformance.
Its annual compounded average return of 8.7 per cent over the past five years is nearly one percentage point higher than the category average.
Portfolio
The fund has as of June 2018 invested about 46 per cent of its portfolio in AAA rated bonds, 30 per cent in AA rated and 10.6 per cent in G-Secs.
Top AAA rated bond holdings include Wadhawan Global Capital, ONGC Petro Additions and Power Finance. The fund’s exposure to AA rated Tata Power Company is 3.6 per cent.
Currently, the yield-to-maturity of the fund is 8.87 per cent, and the duration is 1.56 years.