The interest rates have bottomed out but there is an expectation of a gradual upwards movement going ahead. The prices of debt instruments such as fixed income securities or bonds are inversely related to the interest rates. Notably, when interest rate rises, the price of bonds fall and vice versa.

The debt mutual funds category called short duration funds invests in high quality debt instruments with maturity between 1-3 years. It is suitable for low-risk investors with similar investment horizon. Short duration funds are less sensitive to interest rate fluctuations as compared to long duration funds.

In a rising interest rate environment, there will be an adverse effect on the returns from long duration debt funds. Thus, the short-term debt funds currently look attractive from an investment viewpoint.

TRUST Mutual Fund believes that the steepness in yield curve combined with roll down opportunity may provide a way to generate capital gains. The fund house has launched its third fund, i.e. TRUSTMF Short Term Fund. It is an open-ended short-term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 1 – 3 years.

On the launch of this fund, Mr Sandeep Bagla CEO of TRUST Asset Management Pvt. Ltd. said, “Short Term Income Funds have emerged as the most reliable fixed income category, having delivered consistent returns in times of volatile interest rates as well as uncertain credit environment. At TRUST Mutual Fund, we have crafted an innovative short term fund for our investors, which will aim to deliver consistent returns by taking advantage of the inherent steepness in the yield curve, ideal for a minimum 6-12 month investment horizon.”

Table 1: Details of TRUSTMF Short Term Fund

Type An open-ended short-term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 1 to 3 years. Category Short Duration Fund
Investment Objective The scheme will endeavour to generate stable returns for investors with a short-term investment horizon by investing in debt and money market instruments. However, there can be no assurance that the investment objective of the scheme will be achieved.
SIP/STP/SWP Available
Min. Investment Rs 1,000 and in multiples of Re 1/- thereafter. Additional purchase Rs 1,000 and in multiples of Re 1/- thereafter. Face Value Rs 10/- per unit
  • Direct
  • Regular
  • Growth
  • Income Distribution cum Capital Withdrawal option (IDCW)
Entry Load Not Applicable Exit Load Nil
Fund Manager Mr Anand Nevatia Benchmark Index CRISIL Short Term Bond Fund Index
Issue Opens July 20, 2021 Issue Closes August 03, 2021

(Source: Scheme Information Document)  

What will the Investment strategy for TRUSTMF Short Term Fund be?

TRUSTMF Short Term Fund aims to build a portfolio by predominantly investing in high rated debt and money market instruments, such that the Macaulay Duration of the portfolio is between 1-3 years.

The fund emphasizes on constructing a high quality portfolio by investing in AAA rated and sovereign securities selected on the basis of quality, stability, and liquidity filters. The fund will follow structured investment approach in accordance with ‘LimitedACTIV’ methodology that will try to achieve an optimal risk-return balance for management of the fixed income portfolios.

The fund management team will endeavour to maintain a consistent performance in the scheme by maintaining a balance between safety, liquidity, and profitability aspects of various investments.

The fund management team will take an active view of the interest rate movement by keeping a close watch on various parameters of the Indian economy, as well as developments in the global markets. Investment views/decisions will be taken on the basis of the following parameters:

  • Prevailing interest rate scenario
  • Quality of the security/instrument (including the financial health of the issuer)
  • Maturity profile of the instrument
  • Liquidity of the security
  • Growth prospects of the company / industry
  • Any other factors in the opinion of the fund management team

Under normal circumstances, the asset allocation will be as under:

Table 2: Asset Allocation of TRUSTMF Short Term Fund

Instruments Indicative Allocations (% of Net Assets) Risk Profile
Minimum Maximum High/Medium/Low
Debt Securities and Money Market Instruments 0 100 Low to Medium
Units issued by REITs & InvITs 0 10 Medium to High

(Source: Scheme Information Document)  

Being a short-term fund, this scheme will invest up to 100% of its assets in debt securities and money market instruments. It may also invest up to 10% in units issued by REITs & InvITs in order to meet the liquidity requirements of the scheme.

Who will manage TRUSTMF Short Term Fund?

Mr Anand Nevatia will be the dedicated fund manager for this scheme.

Mr Anand Nevatia is Fund Manager – Fixed Income segment at TRUST Asset Management Pvt. Ltd. He is a CFA and MBA graduate with 17 years of work experience in financial services. Prior to joining TRUST AMC, he was associated with Trust Investment Advisors Pvt. Ltd. for Portfolio Management Activity and Trust Capital Services for developing and maintaining client relationships, research and analysis, providing advisory services to clients.

The other schemes managed by him are TRUSTMF Banking & PSU Debt Fund and TRUSTMF Liquid Fund.

Fund Outlook – TRUSTMF Short Term Fund

TRUSTMF Short Term Fund aims to generate stable returns by investing in instruments of issuers having long-term AAA rating with a short-term investment horizon. By applying the liquidity, stability, and quality criteria, it will ensure a high quality portfolio.

This scheme will follow the short-duration strategy aiming for consistent performance. It offers investors to seek benefit from persistent steepness in the yield curve in 1-3 year segment.

The scheme will hold a structured methodology where the fund manager will actively manage the scheme and take exposure based on pre-defined limits. The scheme has analyzed consistent risk-adjusted returns in back testing of model portfolio by CRISIL.

However, such short duration debt funds are not risk free. They are prone to credit risk, default risk, and interest rate risk. These short-term funds aim to provide better returns than traditional fixed deposits. Thus, investors seeking an alternate for bank FDs may consider short duration funds.

You must ensure your suitability to the fund based on risk appetite, investment horizon, and investment objectives. Apart from this, pay attention to portfolio quality and maturity profile.

This article first appeared on PersonalFN here

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