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Aabhas Pandya
New Delhi, Oct 20: At a time when income funds are keeping money in short-term securities in the absence of both high yield and good quality paper, UTI Bond Fund has invested up to 57 per cent of its corpus in triple A rated short-term corporate debt. The fund, launched earlier this year, had a 51 per cent exposure to AAA rated corporate debt as on September 23 which has been steadily increased to 57 per cent as on October 16. The fund holds 30 per cent in AA+ rated debt, 3 per cent in double A, 5 per cent in A-, 4 per cent in A + and 1 per cent in A rated corporate instruments.
The fund currently has a 77 per cent investment in corporate debt while only 2 per cent is held in government securities. Another 16 per cent is in money markets while the remaining five per cent is in cash. The top ten are debt holdings from Reliance, MTNL, IDBI, Mahavir Spinning, Telco, Indian Rayon, Tisco, Larsen and Tubro, Tata Chem and Sterlite.
Sources point out that though there is lot of bad paper in the market, UTI is notfinding it difficult to get triple A rated paper since corporates keep approaching the mutual fund behemoth for investments in their respective debt papers. ``We have also picked up some triple A paper from the secondary market,'' said a source in UTI. ``At least here, the size of UTI is working to its advantage since corporates approach the institution with their paper and UTI can afford to reject offers where credit quality is a suspect. Second, the bond fund had the advantage of starting with a sizeable corpus and can afford to invest in paper with investments of Rs 8-10 crore,'' said a fund manager.
The average duration of UTI Bond Fund's portfolio is 1.79 years, which is very much in line with that of private sector asset management companies. The fund, which initially mobilised Rs 137 crore, has seen its corpus grow to Rs 303 crore. This makes it the second largest open-end income fund after Birla Income Plus. Since launch, the fund has attracted over Rs 150 crore through fresh subscriptions. With acurrent net asset value Rs 10.46, the fund has given a return of 4.6 per cent in four months since launch. This translates into an annualised return of 13.8 per cent.
Currently, an overwhelming majority of open-end income funds are keeping money in short-term securities and money market instruments on account of interest rate uncertainty and near absence of good quality instruments in the secondary market.
Fund managers also blame hyper-active credit rating agencies for a part of the problem. ``The moment you invest in a security, it gets downgraded. We have very active credit rating agencies,'' says a fund manager. ``I have a company in my portfolio which has been downgraded but continues to pay interest one day in advance,'' he adds. Again, sectors like IT and FMCG do not mobilise money in the debt market. It is only companies from cyclical and commodity-based industries that tap the debt market. ``Since these sectors are not performing well, bulk of instruments have been downgraded,'' says S Kannan atEscorts AMC.
With their huge investible resources, banks and financial institutions have pushed aside income funds. ``Good quality paper is not available at a meaningful rate because banks are first in the queue and take the paper at 11.5 to 12 per cent which still gives them a spread of 3-4 per cent,'' says a Chennai-based fund manager.
``Besides the heavy demand in the secondary market from banks, LIC and UTI, these institutions corner good quality paper because of the sheer size of their operations. However, good quality paper is still available in the market but a lot of funds seem to be waiting for paper of certain duration,'' adds a debt dealer. ``It is here that UTI has the advantage since it can work the tenure of the debt paper to its advantage and requirements,'' says an analyst.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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