The interest rate fluctuations are linked to bond prices and it affects the performance of the debt schemes. The debt mutual fund category past few years was going through challenging times, due to downgrades, defaults, Franklin Templeton fiasco and uncertainties of the money market. However, the debt segment has stabilized now,and is drawing investors’ attention.

If you are seeking to invest in debt markets to benefit from the changing market and interest rate scenario, you may consider investing in dynamic bond funds. Dynamic bond funds are category of debt mutual funds, which invests in debt securities with varying maturity periods. These funds are for investors who find it a daunting to time their entry and exit in the debt markets based on interest rate cycle.

When interest rates rise, having exposure to the longer end of the yield curve can prove to be risky whereas short-duration funds tend to outperform long-duration funds in a rising interest rate environment and vice versa Dynamic bond funds hold active management with duration flexibility in order to generate attractive returns across interest rate cycles.

ITI Mutual Fund with the launch of ITI Dynamic Bond Fund has added new debt-oriented scheme to its product basket. It is an open-ended dynamic debt scheme investing across duration.

On the launch of this fund, Mr George Heber Joseph, CIO and CEO at ITI Asset Management Ltd. said, “We are focussed on offering a unique investment experience to investors through our schemes and fund management. With ITI Dynamic Bond Fund, we target to address the needs of investors who are looking for an all-seasons product which aims to provide steady returns by investing in debt and money market instruments.”

Table 1: Details of ITI Dynamic Bond Fund

Type An open-ended dynamic debt scheme investing across duration. Category Debt Scheme – Dynamic Bond Fund
Investment Objective The investment objective of the Scheme is to maximise returns through an active management of a portfolio comprising of debt and money market instruments. However, there can be no assurance that the investment objective of the scheme will be achieved.
Min. Investment Rs 5000/- and in multiples of Re 1 thereafter. Additional Purchase Rs 1000/- and in multiples of Re 1 thereafter. Face Value Rs 10/- per unit
  • Direct
  • Regular
  • Growth
  • Income Distribution Cum Capital Withdrawal (IDCW)
Entry Load Not Applicable Exit Load Nil
Fund Manager – Mr Vikrant Mehta Benchmark Index CRISIL Dynamic Debt Index
Issue Opens: June 25, 2021 Issue Closes: July 9, 2021

(Source: Scheme Information Document

What will the Investment strategy for ITI Dynamic Bond Fund be?

ITI Dynamic Bond Fund will predominantly invest in debt and money market instruments to maximize returns through active management. The scheme aims to provide safety, quality of business and liquidity to the portfolio by investing in debt instruments issued by eligible issuers across the spectrum.

The investment strategy will focus on constructing fixed income portfolios in line with mentioned investment objective. The Scheme follows an active investment strategy structured in a manner that offers investors the benefit of a dynamic investment strategy through its duration management and asset allocation.

It will hold a medium to long-term investment option that provides the flexibility to counter a dynamic environment by actively managing its portfolio in line with the evolving interest rate scenario.

The scheme will invest in highly liquid government bonds and AAA rated bonds to maintain the liquidity ratio in the portfolio. There are risk on risk off situations in the markets, which will be taken care of by the fund manager and opportunistically profited by moving the money to different maturity buckets. The fund manager will manage the fund based on the outlook on interest rates and liquidity etc.

Under normal circumstances, asset allocation will be as under:

Table 2: Asset Allocation of ITI Dynamic Bond Fund

Instruments Indicative Allocation (% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
Debt and Money Market Instruments across duration 0 100 Low to Medium
Units issued by REITs and InvITs 0 10 Medium to High

(Source: Scheme Information Document

Who will manage ITI Dynamic Bond Fund?

Mr Vikrant Mehta is Head – Fixed Income at ITI Asset Management Ltd. and has over 25 years of extensive experience in Fixed Income Markets. Prior to this, he was associated with Indiabulls Asset Management Co. Limited as the Head – Fixed Income, PineBridge Investments as Head of Fixed Income and he has held executive positions in organisations like NVS Brokerage Private Ltd and JM Morgan Stanley Fixed Income Securities Pvt. Ltd.

Mr Mehta holds a Master’s Degree in Engineering from Kiev Polytechnical Institute, Ukraine and he is also a Chartered Financial Analyst (CFA) from ICFAI. The other schemes he manages are ITI Ultra Short Duration Fund, Co-Fund Manager of ITI Liquid FundITI Overnight FundITI Arbitrage Fund and ITI Banking & PSU Debt Fund.

Fund Outlook – ITI Dynamic Bond Fund

ITI Dynamic Bond Fund aims to invest in high quality debt securities with varying maturity profile to maximize returns and maintain liquidity of the portfolio across interest rate cycles.

The performance of this scheme will depend on the RBI’s monetary policy stance as it tries to capture returns from securities across durations and how well the fund manager aligns the portfolio to benefit from the prevailing interest rate scenario.

This scheme offers investors flexible asset allocation, diversification and active duration management. It will endeavour to move from low duration to high duration buckets seamlessly depending upon market and economic conditions.

However, do note that if the fund manager fails to accurately gauge the movement of interest rates, or is unable to time the investment precisely, investors may suffer losses. Moreover, in case of unanticipated movement in interest rate the fund may witness high volatility in the short term.

This scheme is suitable for investors with moderate to high-risk appetite looking to use the fluctuation in interest rate to their advantage over a long-term perspective of 3 to 5 years.

This article first appeared on PersonalFN here

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