Mutual Funds

Fund Call: IDFC Bond Fund - Medium Term Plan: Stable returns in turbulent times

Radhika Merwin | Updated on November 03, 2019

The fund has delivered 8% annual returns over five- and 10-year periods

While the RBI reduced its policy repo rate by 25 basis points in the October policy review, and also kept the possibility open for further cuts in the coming months, investors should tread with caution. Lingering concerns over the Centre’s fiscal slippage and uncertainty over global developments can keep the domestic bond market volatile.

Hence, for investors with low to moderate risk appetite, investing in short- and medium-term debt funds can help mitigate interest-rate risk.

IDFC Bond Fund - Medium Term Plan (MTP) is a top-performing fund within its category that has delivered 8 per cent annual returns over five- and 10-year periods. As mandated by SEBI’s categorisation norms, medium- duration funds must invest in debt instruments such that the Macaulay duration of the portfolio is 3-4 years. Hence, such schemes help tide over interest-rate risk better as they are less sensitive to interest-rate movements than long-duration bonds.

IDFC Bond Fund - MTP also predominantly invests in AAA rated and sovereign bonds. Given the unfavourable credit-risk environment, investing in a fund with portfolio of high- rated debt securities is a sound option.




IDFC Bond Fund - MTP has consistently outperformed its category over the long run. The scheme, managed by Suyash Choudhary, has been able to make the most of bond rallies, and cap downsides in lacklustre markets. The fund carries a five-star rating (the highest) under BusinessLine Portfolio Star Track Ratings, thanks to its consistent performance across market cycles and deft management of downside risk.

Consistent track record

IDFC Bond Fund - MTP, earlier known as IDFC Super Saver Income Fund - Medium Term Plan, has kept the average maturity of its portfolio at 2-4 years. This has helped it deliver stable returns even in volatile markets.

In the so-so market of 2017, for instance, the fund managed to deliver about 5 per cent returns, even as long-duration gilt funds delivered only 1-3 per cent return.

But given the relatively shorter maturity of their portfolio, medium-term debt funds, by design, may not deliver mouth-watering returns like long-duration gilt funds do, in good markets. While gilt funds delivered 14-16 per cent returns in 2014 and 2016, medium-term debt funds such as IDFC Bond Fund - MTP delivered 10-11 per cent returns during these periods.

Nonetheless, the returns are notable given the relatively low interest-rate risk that investors take in medium-term debt funds. In case of IDFC Bond Fund - MTP, the fund’s predominant exposure to AAA rated bonds and G-Secs also lowers the credit risk. Over the past three years, the scheme has been maintaining 85-90 per cent of its portfolio in G-Secs and AAA rated securities.

Current portfolio

The fund currently holds 42.4 per cent in Central government bonds and 50.4 per cent in AAA rated corporate bonds. Bonds issued by NABARD, Reliance Industries, PFC and LIC Housing Finance are among the fund’s top holdings. The scheme carries a current yield-to- maturity of 6.9 per cent. The fund’s maturity is 3.75 years, which can help it cash in on rallies and also cap downsides if bond markets turn choppy.

Published on October 26, 2019

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