The Hindu Business Line : Fixed-income space buzzing with activities

When equities are so compelling, does it make sense to talk much about debt funds? You may think that the answer is obvious. However, let us just tell you that the seemingly lacklustre world of fixed-income funds is currently in a flux, marked as it is by the arrival of plenty of new products.

Look at the new offer documents filed by various fund houses, and you will know for sure that the parade of fixed-term products will continue. Thrown in between these are interval funds, mooted by several players, large and small. The objectives of all these offers are fairly similar – generate income through a mix of debt and money market instruments that mature in line with the time horizon of the plans in question.

Less diversification

While there is not much diversity in terms of product variation – in fact, investment circles consider most of these as me-too in nature – what sets the category apart is consistency. There is consistency on several fronts. In a manner of speaking, this is evident from the repeated attempts by fund houses to tap loyal investors with the same sort of products.

Is there sufficient scope for differentiating debt funds further? As most quarters point out, such scope is actually quite limited at this stage. And, assuming they are right, investors will have to be satisfied with the restricted fare dished out to them by the asset management industry.

Let us also clarify at this juncture that we are talking merely about short term alternatives. That is because just about everybody seems to be avoiding longer term options. But this is not to say there is no competition among fund houses to spruce up their debt assets.

Fund of Funds

Now, if you are overly devoted to debt, an FoF (fund of funds) made up of shorter term debt products may make sense. In fact, OptiMix, which specialises in FoFs, has lately mooted such an idea. We quickly looked up the offer document and found that the proposed FoF, named as OptiMix Active Short Term Fund, will aim at investing in a basket of debt funds with average maturity up to 18 months.

The plan is to have “diverse investment styles of underlying schemes”, as the offer document put it. There will, therefore, be a blend of liquid funds, liquid plus funds, fixed maturity plans, short term funds, floating rate funds and the tried-and-tested money market instruments. The objective is “to capture a steady accrual from funds having minimal interest rate risk”, OptiMix has pointed out.

The underlying theory appears simple. You, the true-blue debt fund aficionado, need not bother about choosing the best short-term products. (Remember, there are far too many me-too options anyway). Instead, let the multi-manager whiz do the selection for you. However, the specialist in question must fully grasp the funds he chooses as the underlying assets. Each underlying scheme, after all, has a clear-cut investment doctrine, which it executes within a limited framework.

Does such a strategy appeal to you yet? Or, will you still go ahead and just pick up the best-performing funds to construct your debt portfolio? In spite of everything, there isn’t a huge difference between the top performer and the worst, especially on shorter term front. So, what say you?

Feedback may be sent to nilanjan@thehindu.co.in

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