The Hindu Business Line : `Kotak MF's approach has not changed after Credit Policy'

PROVIDENT funds, superannuation funds and gratuity funds are now free to invest up to 70 per cent of their annual accretions in mutual funds dedicated to government securities. Loosely put, the latter would have to be securities defined under Section 2 of the Public Debt Act, 1944.

Kotak Mahindra Mutual Fund has outlined a proposal to tap PFs, which collectively have huge resources at their disposal. Mr Sandesh Kirkire, Head - Debt Funds, shares his views with Business Line.

Why do you think PFs should invest in gilt funds at all?

The Labour Ministry, as you know, has allowed PFs to allocate more to gilt funds, which run actively-managed portfolios. Such allocation will make sense for managers and trustees of PFs.

For one thing, it will permit them to take advantage of the movements that may be taking place in the market at any given moment. There is no need to be constrained by the concept of a minimum market lot.

A PF will now be required to buy units of a gilt fund like ours and stay invested till it requires the money, wholly or partly. Cash flows, therefore, can be managed in a better manner by investing in gilt products that some MFs are now introducing.

Have you reviewed the potential of the market?

Yes. We have noted how PFs have been investing in g-secs and holding them to maturity. We are also aware of the fact that many PFs are capable of deploying large amounts. A gilt fund will provide these investors a chance to enhance returns without compromising on liquidity. It will be possible to spell out, right at the very outset, the date on which they may wish to exit.

How do you view elements like credit growth and liquidity?

Let's face it... credit growth has been quite modest in recent times. This year, the credit offtake scenario has not looked very positive so far. One reason why this has happened is that companies have generally turned more efficient. Their working capital needs have changed. Many of them are sitting on large amounts of cash.

On another front, project implementation is on the low side and not too many greenfield ventures are coming up. Also, wholesale borrowings are not happening. In fact, the credit numbers may not look too different even by the end of the year.

But liquidity continues to look reasonably wholesome.

How is the portfolio of your bond fund composed at the moment?

We have a mix of debt and money market instruments of various maturities. About 54 per cent of the net assets is in g-secs, the rest being spread over corporate debt of different hues and certain liquid assets. All this is monitored fairly actively, which has helped us reach a three-year compounded annual growth rate of over 15 per cent. The fund's overall approach towards investment has not changed in the wake of the recent credit policy.

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