Interest rates may remain flat for a long period of time: Trust MF

We will define the rules which issuers have to pass before becoming a part of our investment universe

January 19, 2021 / 03:25 PM IST

Trust mutual fund is the latest entrant to the industry. Sandeep Bagla, chief executive officer, has worked in the Indian mutual fund industry previously and has managed fixed income schemes. The fund house has just rolled out a Banking & PSU Debt fund. What can Trust MF offer to its investors that others haven’t so far? Moneycontrol’s Nikhil Walavalkar tried to find out. Excerpts:

Trust Mutual Fund is player number 41 in the Rs 31 trillion MF industry. How do you intend to differentiate yourself in an industry that offers almost similar products?

Though products are similar, we would like to offer more consistent, robust and objective processes to manage money. We have also tied up with CRISIL as a knowledge partner for fixed income schemes. CRISIL will help on objective solutions for all steps in the investment process. For example, when we launch a debt fund, CRISIL will do the back-testing. We will define the rules which issuers have to pass before becoming a part of our investment universe. Though the rules are ours, CRISIL will carry out the filtering process on an objective basis.

Most of the fixed income indices in India are liquidity oriented. When a bond trades more, its weight in the index goes up. However, we have also decided to gives sufficient weightage to the number of bonds that a company issues. This is a global standard, which we have incorporated in our processes to build our model portfolio. We are also incorporating market insights to decide our model portfolios.

What sort of schemes would you be focusing on?


Initially our focus will be on fixed income funds. We will try to introduce funds that are differentiated and managed in unique way – which we call ‘LimitedActive’. After creating a universe of bonds with filters, we create a model portfolio from the universe – taking the top 70 percent issuers on the basis of amount outstanding. This ensures that the model portfolio represents the universe. We allow fund managers pre-defined limits of variations.

This LimitedActive approach ensures that the fund portfolio is similar to the model portfolio, with some variation.

You have started by rolling out a banking and PSU debt fund. How do you plan to build your product portfolio?

We have three product approvals – short duration, liquid and overnight funds. We will launch another fund in the next two to three months.

Aren’t we little late in launching a Banking & PSU Debt fund?

We have to look at the options available to investors without taking much duration risk. Bonds maturing in three to four years offer attractive yields. Our fund will have a maturity of 3.5 years and benefit from these market yields – around 5.5 per cent. Since we follow a roll-down strategy, as time passes by, the interest rate risk keeps going down. Also, those investing now will get indexation benefit for four years, if they stay put till the roll-down strategy matures.

Have we seen the bottom of interest rates in India?

Inflation may not go up quickly as the output gap (difference between actual production and production capacity) is fairly large in the economy. The recovery in the equity markets is an outcome of easy liquidity and gains on account of cost cutting. So, one is not sure of economic recovery. Unless we see inflation going up, Reserve Bank of India’s monetary policy is expected to remain extremely accommodative. Rates may remain flat for a long period of time.

Should investors with a timeframe of more than three years  ignore fixed income altogether?

Fixed income acts as an anchor to an investor’s wealth. Investors should not be chasing yields just because the interest rates are down. Allocation should be made to stable good credit quality bonds even if they offer returns just above the rate of inflation. At this moment, investors should allocate money to high credit quality bond portfolios with around three years duration to earn relatively stable and tax-efficient returns.
Nikhil Walavalkar
first published: Jan 19, 2021 11:21 am

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