Over the past one year, interest rates on the traditionally favoured bank fixed deposits are on a downward trend. This has made investors search for an alternative option such as corporate bond funds that usually provide higher yield.
Corporate bonds are debt instruments, which are issued by the companies to raise capital. The safety of bonds can be evaluated based on the credit ratings; bonds with AAA rating are considered to have high safety and carry low credit risk.
During the Union Budget 2021, government proposed to form an institutional framework to enhance corporate bond liquidity, after the uncertainty relating to COVID-19 pandemic and to instil confidence among participants in the corporate bond market during times of stress.
You see, mutual funds are amongst the major active players in the corporate bond market and corporate bond funds are the debt mutual fund schemes that invest in such corporate bonds. These funds are mandated by SEBI to invest minimum 80% of its exposure in top rated debt instruments, which reduces the credit risk as compared to other debt funds that may invest in lower rated instruments.
If you are looking for investment in debt mutual fund scheme for a medium to long-term horizon and do not wish to take much risk , you could consider investing in corporate bond funds. These funds are less volatile that other debt mutual funds such as credit-risk funds, long-term debt schemes, etc.
Mirae Asset Mutual Fund has launched Mirae Asset Corporate Bond Fund and the CEO Mr Swarup Mohanty on the launch of this fund said, “At present, investors are looking for both returns and liquidity in their portfolios. Mirae Asset Corporate Bond Fund aims to generate income with moderate risk while remaining focused on quality and liquidity. Mirae Asset due to its strong credit process was not exposed to most stressed asset cases and endeavours to provide stable investment experience to our investors with focus on risk management.”
Table 1: Details of Mirae Asset Corporate Bond Fund
|An open ended debt scheme predominantly investing in AA+ and above rated corporate bonds
|Corporate Bond Fund
|The investment objective of the scheme is to provide income and capital appreciation by investing predominantly in AA+ and above rated corporate bonds. The Scheme does not guarantee or assure any returns.
|Rs 5,000 and in multiples of Re 1/- thereafter. Additional purchase amount Rs 1000 and in multiples of Re 1/- thereafter
|Rs 10/- per unit
|Mr Mahendra Kumar Jajoo
|NIFTY Corporate Bond Index
|February 24, 2021
|March 09, 2021
(Source: Scheme Information Document)
What will be the Investment Strategy for Mirae Asset Corporate Bond Fund?
Mirae Asset Corporate Bond Fund will primarily invest in securities issued by corporate (both private sector and public sectors) including banks and financial institutions rated AA+ and above across maturities / yield curve.
The Scheme endeavours to develop a well-diversified portfolio of debt (including securitised debt) and other instruments. It will look for opportunities from credit spreads among the range of available corporate bonds.
The Fund manager aims to allocate the assets of the Scheme amongst various fixed income instruments (debt / money market) with the objective of optimizing returns. The actual percentage of investment in various fixed income instruments and the general maturity range for the portfolio will be determined from time to time the prevailing macroeconomic environment (including interest rates and inflation), market conditions, general liquidity, and fund manager views.
Apart from investments in corporate debt rated AA+ and above, the scheme will also invest in schemes of mutual funds, up to 20% in Government Securities, other debt and Money Market Instruments and up to 10% in units issued by REITs and InvITs for diversification and subject to necessary stipulations by SEBI from time to time.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation of Mirae Asset Corporate Bond Fund
|Indicative Allocation (% of assets)
|Corporate Debt* rated AA+ and above
|Low to Medium
|Government Securities, other debt and Money Market Instruments
|Low to Medium
|Units issued by REITs &InvITs
|Medium to High
*Corporate Debt include Debenture, Bonds, Commercial Papers and other instruments issued by Corporate entities (private institutions across sectors including NBFC’s, Banks, Financial Institutions, Public Sector Undertakings etc), Securitized Debt# , etc. which are rated as higher than or equal to AA+.
#SecuritisedDebt up to 50% of the net assets of the scheme
(Source: Scheme Information Document)
Who will manage Mirae Asset Corporate Bond Fund?
Mr Mahendra Kumar Jajoo will be the dedicated fund manager for Mirae Asset Corporate Bond Fund.
Mr Mahendra Kumar Jajoo is Chief Investment Officer – Fixed Income at Mirae Asset Investment Managers (India) Pvt. Ltd. and he has over 27 years of experience in the field of financial services. Prior to this, he was associated with AUM Capital Markets Ltd as Director and has worked with organizations like Pramerica Asset Managers Ltd., Tata Asset Management Ltd., ABN AMRO Asset Management Ltd, and ICICI Group.
His qualification includes, ACA, ACS and CFA. He currently manages these funds; Mirae Asset Savings Fund, Mirae Asset Cash Management Fund, Mirae Asset Dynamic Bond Fund, Mirae Asset Hybrid Equity Fund (Debt portion), Mirae Asset Fixed Maturity Plan – Series III – 1122 days, Mirae Asset Equity Savings Fund (debt portion), Mirae Asset Arbitrage Fund (Debt portion), Mirae Asset Banking and PSU Debt Fund, Mirae Asset Ultra Short Duration Fund, Mirae Asset Short Term Fund
Fund Outlook – Mirae Asset Corporate Bond Fund
Mirae Asset Corporate Bond Fund will predominantly invest in AA+ rated corporate bonds with some exposure to government securities. Although the scheme will be investing across the yield curve, depending on the interest rate outlook, it will maintain a target modified duration of 2-5years.
The fund manager of this scheme will follow an active portfolio management in accordance with flexible interest rate strategy. The fund house has mentioned that it will focus on constructing a high-quality portfolio and restrain from investing in AA and below-rated papers and perpetual bonds.
Mirae Asset Corporate Bond Fund is mandated to invest minimum 80% of its assets in highest rated corporate bond instruments (i.e. AAA & equivalent) which makes it less prone to credit risk. However, with the target Macaulay duration of 2-5 years the scheme will be moderately sensitive to interest rate risk and may witness volatility during uncertain and rising interest rate scenario.
Besides, having predominant allocation in moderate to high rated instruments, it may still carry some element of credit risk depending on the instruments it holds in the portfolio and thus it cannot be termed as completely safe. This makes it suitable for investors looking to benefit from exposure to top rated corporate bond instruments, with a time horizon of at least 2 to 3 years.
This article first appeared on PersonalFN here