After a series of defaults and downgrades in the debt space almost three years ago, while investing in debt mutual funds safety became a crucial factor for investors Though the debt market environment is much better now, investors still need to be cautious with their debt investments.

Given the expectation of a rate hike based on the action and stance of the RBI’s monetary policy normalization, which is gaining traction, debt mutual fund investors are looking for safer alternatives. Corporate bond Funds are a great option for investors searching for a fixed but higher-yielding debt investment option.

Considering the current market environment, which is driven by inflationary pressures, as well as recent geopolitical tensions between Russia and Ukraine, which have resulted in a spike in crude oil prices, economic growth may be jeopardised. As a result, these factors may have an impact on the debt market’s performance, and investors may choose to diversify their debt portfolio into safer investment channels.

Experts believe that investors should prefer debt funds with shorter maturity profiles since their lower average maturity makes them less sensitive to interest rate movements in a rising interest rate environment. Corporate bond debt funds are mandated to invest at least 80% of their corpus in the highest-rated companies. This makes them relatively safer than other debt schemes such as credit risk funds, gilt funds, and long-term debt funds that are highly sensitive to interest rate changes in the economy. The corporate bond funds run between low to medium durations and carry moderate credit risk.

JM Financial Mutual Fund has launched JM Corporate Bond Fund. It is an open-ended debt scheme predominantly investing in AA+ and above-rated corporate bonds. A relatively high interest-rate risk and moderate credit risk.

Table 1: Details of JM Corporate Bond Fund

Type An open-ended debt scheme predominantly investing in AA+ and above rated corporate bonds. A relatively high interest rate risk and moderate credit risk. Category Debt Scheme – Dynamic Bond Fund
Investment Objective To generate income through investing predominantly in AA+ and above rated corporate bonds while maintaining the optimum balance of yield, safety, and liquidity. Investors are required to read all the scheme-related information set out in the offer documents carefully and also note that there can be no assurance that the investment objectives of the scheme will be realized. The scheme does not guarantee/ indicate any returns.
Min. Investment Rs 5,000/- 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 (IDCW)
Entry Load Not Applicable Exit Load 0.50% of the NAV if the investments are redeemed within 180 days.
Fund Manager Ms Shalini Tibrewala
Mr Prashant Pimple
Benchmark Index CRISIL Corporate Bond Composite Index
Issue Opens: February 24, 2022 Issue Closes: March 07, 2022

(Source: Scheme Information Document

The investment strategy for JM Corporate Bond Fund will be as follows:

JM Corporate Bond Fund aims to generate income by predominantly investing in AA+ and above rated bonds. The Scheme shall develop a well-diversified debt portfolio (including securitized debt) and other instruments.

The scheme will invest in a portfolio comprising debt instruments rated below investment grade and money market instruments. The Scheme shall invest atleast 80% of total assets in AA+ and above rated corporate bond (including securitized debt). The corpus of the scheme will be invested in high-quality debt money market instruments as the case may be.

The scheme may also invest in the schemes of Mutual Funds. The Scheme may also invest in the hybrid securities viz. units of REITS and INvITs, for diversification and subject to necessary stipulations by the SEBI from time to time. Though every endeavour will be made to achieve the objective of the Scheme, there is no guarantee that the investment objective of the scheme will be achieved. The fund manager will manage the fund based on the outlook on interest rates, liquidity, etc.

Under normal circumstances, the Asset Allocation of the scheme will be as under:

Table 2: Asset Allocation for JM Corporate Bond Fund

Instruments Indicative Allocation (% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
Debt and Money Market Instruments* 90 100 Low to Medium
Units issued by REITs and InvITs 0 10 Medium to High

*The Scheme may invest in debt instruments with special features and will be made in accordance with SEBI Circular No. SEBI/HO/IMD/ DF4/CIR/P/2021/032 dated March 10, 2021, as amended from time to time. In the case of investments in debt securities with special features, the scheme will not invest more than 10% of its NAV of the debt portfolio in such instruments and not more than 5% of its NAV of the debt portfolio in such instruments issued by a single issuer.

(Source: Scheme Information Document

Who will manage JM Corporate Bond Fund?

Ms Shalini Tibrewala and Mr Prashant Pimple will be the designated fund managers for this scheme.

Ms Shalini Tibrewala is Associate Chartered Accountant (A.C.A.), Company Secretary (C.S.), and B. Com graduate. She has over 23 years of experience in the financial services sector. Prior to joining JM AMC, she was working with a firm of Chartered Accountants.

At JM AMC, Ms. Tibrewala currently manages JM Liquid FundJM Overnight FundJM Low Duration FundJM Dynamic Debt Fund, and JM Income Fund.

Mr Prashant Pimple has completed MMS (Finance), CTM (ACTM), and is a B. Com graduate. He has around 20 years of experience in the field of investment and investment-related work. Before joining JM AMC, he was associated with Nippon India Mutual Fund, Fidelity Fund Management India, ICICI Bank, Bank of Bahrain and Kuwait, Saraswat Co-op Bank Ltd, and Small Industrial Development Bank of India (SIDBI).

At JM AMC, Mr. Pimple currently manages JM Dynamic Debt FundJM Income FundJM Liquid FundJM Overnight Fund, and JM Low Duration Fund.

Fund Outlook – JM Corporate Bond Fund

JM Corporate Bond Fund will predominantly invest in AA+ rated corporate bonds while maintaining the optimum yield, safety, and liquidity balance. The scheme may hold a duration of about 3 years, plus the investment horizon will be designed to give maximum tax efficiency (Additional 1-year indexation).

The scheme offers investors the potential to provide better risk-adjusted returns than other mutual funds in debt categories. The scheme will endeavour to create a high-quality portfolio and restrain from investing in AA- and below-rated bonds. The scheme will seamlessly move from low duration to medium duration buckets depending on the market and economic conditions.

The performance of JM Corporate Bond Fund will depend on the RBI’s monetary policy stance as it tries to capture returns from debt securities across durations and how well the fund manager aligns the portfolio to benefit from the prevailing interest rate scenario remains to be seen. JM Corporate Bond Fund is mandated to invest a minimum of 80% of its assets in the highest-rated corporate bond instruments (i.e. AA+ & above), making it less prone to credit risk.

However, note that JM Corporate Bond Fund will be moderately sensitive to interest rate risk and may witness volatility during uncertain and rising interest rate scenarios. Investors may suffer losses if the fund manager fails to gauge the movement of interest rates accurately or cannot time the investment precisely.

Moreover, in case of unanticipated movement in the interest rate, the fund may witness high volatility in the short term. The Indian bond markets have already displayed discomfort due to monetary policy normalisation. As a result, the bond market is expected to remain volatile in the near term. The interest rate risk amidst the dynamic market conditions is likely to have a bearing on the scheme’s performance.

This makes JM Corporate Bond Fund suitable for investors looking to benefit from exposure to top-rated corporate bond instruments, with a moderate-risk appetite and long investment horizon in line with the duration of the fund.

This article first appeared on PersonalFN here

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