{"id":283,"date":"2019-05-10T11:33:38","date_gmt":"2019-05-10T11:33:38","guid":{"rendered":"http:\/\/blog.certifiedfinancialguardian.com\/?p=283"},"modified":"2019-05-13T10:33:43","modified_gmt":"2019-05-13T10:33:43","slug":"kotak-floating-rate-fund-worth-taking-the-risk","status":"publish","type":"post","link":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/2019\/05\/10\/kotak-floating-rate-fund-worth-taking-the-risk\/","title":{"rendered":"Kotak Floating Rate Fund: Worth Taking the Risk?"},"content":{"rendered":"\n

Kotak Mutual Fund<\/a> launched an open-ended debt scheme, Kotak Floating Rate Fund (KFRF). The scheme will predominantly invest in floating rate instruments.<\/p>\n\n\n\n

As per reclassification, a floating rate\nfund is a category of debt scheme that invests a major portion of its corpus\n(about 60-100 per cent) in floating rate instruments and the rest in fixed\nincome securities. <\/p>\n\n\n\n

It is one of the\nlesser known debt funds that have a lower degree of sensitivity to changes in\ninterest rates. As the rates payable on a floating rate instrument oscillates\nin line with the defined interest rate level, so these funds are less sensitive\nto duration risks.<\/p>\n\n\n\n

Duration risk is the risk of missing out on high returns when the interest rate rises in the market and the investor is holding a fixed income investment.<\/p>\n\n\n\n

So, if interest\nrates go up, a floater fund will yield a higher level of returns. Hence, when\nthe interest rates are expected to rise, choosing a floating rate fund is an\nattractive option for risk-averse investors.<\/p>\n\n\n\n

Although KFKR can\nallocate its assets predominantly in floating rate debt securities within the\nprescribed limit of 65% to 100%. But it may allocate some portion to fixed\ninvestment debt securities and units issued by REITs and InvITs.<\/p>\n\n\n\n

Table 1: NFO Details<\/em><\/strong><\/p>\n\n\n\n
\n Type<\/strong>\n <\/td>\n An open-ended debt scheme predominantly investing in floating rate instruments.\n <\/td>\n Category<\/strong>\n <\/td>\n Floater Fund\n <\/td><\/tr>
\n Investment Objective<\/strong>\n <\/td>\n The primary objective of the Scheme is to generate income through investment primarily in floating rate debt instruments, fixed rate debt instruments swapped for floating rate returns and money market instruments.
\nHowever, there is no assurance or guarantee that the investment objective of the scheme will be achieved.\n\n <\/td>\n<\/tr>
\n Min. Investment<\/strong>\n <\/td>\n Rs 5,000 and in multiples of Re 1 thereafter\n <\/td>\n Face Value<\/strong>\n <\/td>\n Rs 1,000 per unit\n <\/td><\/tr>
\n Plans <\/strong>\n <\/td>\n
    \n
  • Direct*<\/li>
  • Regular<\/li><\/ul>\n *Default option\n option<\/em>\n <\/td>
\n Options<\/strong>\n <\/td>\n
    \n
  • Growth*<\/li>
    \n
  • Dividend<\/li><\/ul>\n
      \n
    • (Pay-out and Reinvestment*) <\/li>\n
    • Pay-out Facility<\/li><\/ul>\n *Default\n option<\/em>\n <\/td><\/tr>
\n Entry Load<\/strong>\n <\/td>\n Not Applicable\n <\/td>\n Exit Load<\/strong>\n <\/td>\n Nil\n \n <\/td><\/tr>
\n Fund Manager<\/strong>\n <\/td>\n Mr Deepak Agrawal and Mr Arjun Khanna\n <\/td>\n Benchmark Index<\/strong>\n <\/td>\n NIFTY Ultra Short Duration Debt Index TRI\n <\/td><\/tr>
\n Issue Opens:<\/strong>\n <\/td>\n May 9, 2019\n <\/td>\n Issue Closes:<\/strong>\n <\/td>\n May 13, 2019\n <\/td><\/tr><\/tbody><\/table>\n\n\n\n

(Source: Scheme\nInformation Document<\/a>)<\/p>\n\n\n\n

How will Kotak Floating Rate Fund allocate its assets?<\/strong><\/p>\n\n\n\n

Under normal circumstances, the scheme\u2019s asset allocation<\/a> pattern will be as under:<\/p>\n\n\n\n

Table\n2: KFRF\u2019s Asset Allocation<\/em><\/strong><\/p>\n\n\n\n
\n Instruments<\/strong>\n <\/td>\n Indicative\n Allocation<\/strong>\n <\/td>\n Risk\n Profile<\/strong>\n <\/td><\/tr>
\n Floating Rate Debt Securities (including\n securitized debt and Fixed rate debt instruments swapped for floating rate \n returns)\n <\/td>\n 65\n – 100%\n <\/td>\n Low\n \u2013 Medium\n <\/td><\/tr>
\n Fixed Rate Debt Securities (including\n securitized debt, money market instruments & Floating rate debt instruments\n swapped for Fixed rate returns)\n <\/td>\n 0\n – 35%\n <\/td>\n Low\n \u2013 Medium\n <\/td><\/tr>
\n Units issued by REITs and InvITs\n <\/td>\n 0\n – 10%\n <\/td>\n Medium\n to High\n <\/td><\/tr><\/tbody><\/table>\n\n\n\n

*Debt\nsecurities\/instruments are deemed to include securitised debt and investment in\nsecuritised debt will not exceed 50% of the net assets of the Scheme.<\/p>\n\n\n\n

Money\nMarket instruments include commercial papers, commercial bills, treasury bills,\nGovernment securities having an unexpired maturity up to one year, call or\nnotice money, certificate of deposit, usance bills, and any other like instruments\nas specified by the Reserve Bank of India from time to time.<\/p>\n\n\n\n

The\nscheme retains the flexibility to invest across all the securities in the debt\nand Money Markets Instruments.\n<\/p>\n\n\n\n

Pending\ndeployment of funds of a scheme in terms of investment objectives of the\nscheme, a mutual fund may invest them in short term deposits of scheduled\ncommercial banks, subject to the guidelines issued by SEBI vide it’s circular\ndated April 16, 2007, as may be amended from time to time. The AMC shall not\ncharge any investment management and advisory fees for parking of funds in such\nshort-term deposits of scheduled commercial banks for the scheme.<\/p>\n\n\n\n

The\nScheme will invest up to a maximum of 20% of debt portion of the Scheme in\nforeign securities as specified in the SEBI circular SEBI\/IMD\/CIR\nNo.7\/104753\/07 dated September 26, 2007 and any subsequent amendments thereto\nspecified by SEBI and\/or RBI from time to time flexibility to invest across all\nthe securities in the debt and Money Markets.<\/p>\n\n\n\n

(Source: Scheme\nInformation Document<\/a>)<\/p>\n\n\n\n

What will be the Investment Strategy?<\/strong><\/p>\n\n\n\n

The scheme will seek to generate returns by\ninvesting predominantly in floating rate instruments (including fixed rate\ninstruments converted to floating rate exposures using swaps\/ derivatives). <\/p>\n\n\n\n

The Fund Manager may be guided by, but not\nrestrained by, the ratings announced by various rating agencies on the assets\nin the portfolio.<\/p>\n\n\n\n

The scheme may invest in another scheme of\nthe Kotak Mahindra Mutual Fund or any other Mutual Fund without charging any\nfees, provided that aggregate inter-scheme investment made by all schemes under\nthe management of Kotak Mahindra Asset Management Company Limited or in schemes\nunder the management of any other asset management company shall not exceed 5%\nof the net asset value of Kotak Mahindra Mutual Fund. The Fund may underwrite\nprimary issuances of securities subject to the Regulations<\/p>\n\n\n\n

Risk\nMitigation:<\/strong> <\/p>\n\n\n\n

  1. Risk control measures for\ninvestment strategy: The fund will comply with the prescribed SEBI limits on\nexposure. Risk is monitored at periodic intervals and the portfolio is\nrebalanced within the specified time period in case of any deviations.<\/li>
  2. Risk mitigation measures for\nportfolio volatility: The scheme invests predominantly in floating rate\ninstruments and therefore the interest rate risk is minimal. The scheme also\ninvests a significant portion in high credit quality papers to mitigate credit\nrisk and the resultant volatility. Portfolio volatility is monitored on a\nperiodic basis relative to the benchmark and the peer set.<\/li>
  3. Risk mitigation measures for\nmanaging liquidity: To manage liquidity, enough investments are made in money\nmarket instruments. Investments are also made in maturity buckets to provision\nfor unforeseen outflows.<\/li><\/ol>\n\n\n\n

    Who\nwill manage the Kotak Floating Rate\nFund?<\/strong><\/p>\n\n\n\n

    Mr Deepak Agrawal will be the lead manager,\nmanaging the scheme. Mr Arjun Khanna will be the Dedicated Fund Manager for\ninvestments in foreign securities.<\/p>\n\n\n\n

    Mr\nDeepak Agrawal<\/strong> holds a Post Graduate degree in\nCommerce, a Chartered Accountant and a Company Secretary. Mr Agarwal 15 years\nof experience in financial research.<\/p>\n\n\n\n

    He started his career from Kotak AMC in\n2002. When he joined the organization, he was initially in Research, Dealing\nand then moved into Fund Management from November 2006.<\/p>\n\n\n\n

    Some of the schemes that he manages at the fund house include Kotak Liquid Fund<\/a>, Kotak Money Market Scheme<\/a>, Kotak Savings Fund<\/a>, Kotak Banking and PSU Debt Fund<\/a>, Kotak Low Duration Fund<\/a>, Kotak Bond Short Term<\/a>, Kotak Dynamic Bond Fund<\/a>, Kotak Credit Risk Fund<\/a>, Kotak Corporate Bond Fund<\/a>, Kotak Medium Term Plan<\/a> and All Kotak FMP Series.<\/p>\n\n\n\n

    Mr Arjun Khanna is a Bachelor of\nEngineering (Electronics) and has done his Master of Management (Finance) from\nJamnalal Bajaj Institute of Management Studies, Mumbai. He has received the\nChartered Financial Analyst designation from the CFA Institute.<\/p>\n\n\n\n

    Mr Khanna has over 11 years of experience\nout of which 10 years have been with Mutual Funds in Equity Research. Prior to\njoining Kotak Mahindra Mutual Fund, he was with Principal Mutual Funds. He has\nalso worked at Citibank in his earlier stint.<\/p>\n\n\n\n

    Some of the schemes that he manages at the fund house include Kotak Infrastructure & Economic Reform Fund<\/a>, Kotak Bluechip Fund<\/a>, Kotak Equity Hybrid<\/a>, Kotak Emerging Equity Scheme<\/a>, Kotak Equity Savings Fund<\/a>, Kotak Small Cap Fund<\/a>, Kotak Standard Multicap Fund<\/a>, Kotak Debt Hybrid Fund<\/a>, Kotak Equity Opportunities Fund<\/a>, Kotak Banking and PSU Debt Fund<\/a>,  Kotak Bond Short Term Plan<\/a>, Kotak Bond Fund<\/a>, Kotak Corporate Bond Fund<\/a>, Kotak Dynamic Bond Fund<\/a>, Kotak Money Market Scheme<\/a>, Kotak Credit Risk Fund<\/a>, Kotak Mahindra Liquid Scheme<\/a>, Kotak Low Duration Fund<\/a>, Kotak Medium Term Fund<\/a>, Kotak Savings Fund<\/a> and Kotak Mahindra Gilt Unit Scheme 98 \u2013 Investment Plan<\/a><\/p>\n\n\n\n

    The outlook for Kotak Floating Rate Fund:<\/strong><\/p>\n\n\n\n

    To achieve the said objective of the\nscheme, the fund managers will invest mainly in floating rate instruments\n(including fixed rate instruments converted to floating rate exposures using\nswaps\/ derivatives). The fund managers will control the risk through periodic\nmonitoring and referring to the ratings announced by various rating agencies.<\/p>\n\n\n\n

    Currently, the Indian debt market is\nsurrounded by rating downgrades. Hence there have been fewer rollovers of fixed\nincome plans as the fixed deposits rates have been higher. So even the fresh\nissuance of FMPs has been stalled.<\/p>\n\n\n\n

    As regards to the liquidity conditions,\nhigh election-related spending has resulted in deficit conditions. However, the\nRBI managed the situation by actively conducting Open Market Purchase\nOperations (OMOs) and has slashed the rate twice this calendar year 2019 to support growth.<\/p>\n\n\n\n

    Going forward, liquidity conditions are\nexpected to improve as the government improves and with dollar-rupee swaps. <\/p>\n\n\n\n

    If the inflation continues to remain within RBI\u2019s\ncomfort zone, policy rates may even reduce further given the neutral monetary\npolicy stance. <\/p>\n\n\n\n

    It’s noteworthy that the 10-yr G-Sec yield increased\na bit by 7 bps in April 2019 and since the 1st<\/sup> bi-monthly monetary\npolicy for 2019-20. So far in 2019, the benchmark yield has moved by around 4\nbps.<\/p>\n\n\n\n

    However, in terms of the risk-return\nproposition, KFKR is a moderately-low-risk-return investment proposition for it\ncarries credit risk. Hence, it would be suitable for investors having an\ninvestment time horizon of 2 to 3 years and moderately low-risk tolerance. <\/p>\n","protected":false},"excerpt":{"rendered":"

    Kotak Mutual Fund launched an open-ended debt scheme, Kotak Floating Rate Fund (KFRF). The scheme will predominantly invest in floating rate instruments. As per reclassification, a floating rate fund is a category of debt scheme that invests a major portion of its corpus (about 60-100 per cent) in floating rate instruments and the rest in…<\/p>\n","protected":false},"author":4,"featured_media":285,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"cybocfi_hide_featured_image":""},"categories":[3],"tags":[],"_links":{"self":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/283"}],"collection":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/comments?post=283"}],"version-history":[{"count":7,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/283\/revisions"}],"predecessor-version":[{"id":299,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/283\/revisions\/299"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media\/285"}],"wp:attachment":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media?parent=283"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/categories?post=283"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/tags?post=283"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}