Mutual Funds

IDFC Bond Fund - Short Term Plan: Keeping credit, interest-rate risks at bay

Radhika Merwin | Updated on July 04, 2020 Published on July 04, 2020

The fund has delivered healthy returns in boom phases and volatile/sombre markets

Investors with very low risk appetite or retirees must continue to park a chunk of their investments in safe bank deposits and post office schemes, though the returns have lost sheen in recent times. However, to add that extra spunk to the overall portfolio returns, conservative investors can park a small portion of their investments in relatively less-risky debt funds.

Debt funds, in general, carry credit or interest-rate risk or both, depending on the nature of investments.

Short-duration debt funds that have the mandate of investing in debt securities such that the Macaulay duration of the portfolio is 1-3 years help mitigate interest-rate risk. This is because short-term bonds are less sensitive to rate movements than longer tenure bonds. But to keep credit risk, too, at bay, it is important to pick funds in this category that invest mostly in high-rated papers.

IDFC Bond Fund - Short Term Plan (STP) is a steady performer within the category and has invested 95 per cent and over in highest-rated bonds over the past three years.

The healthy quality of the underlying portfolio is a big positive, particularly in current times when the risk of defaults has risen amid the pandemic crisis.

The fund’s average maturity has also been steady at 2-2.2 years, keeping rate risk minimal.

The fund’s returns may sometimes lag peers owing to its predominant investments in low-yielding, high-rated bonds and lower maturity. But it is a good bet for conservative investors looking for steady returns with relatively low risk.

Investors with a two- to three-year horizon can invest in the fund.



Consistent returns

The fund sports a consistently good track record of performance across periods and rate cycles. For instance, in 2014 and 2016, when bond prices rallied sharply, the scheme delivered a tidy 8.8-10 per cent return.

While this was lower than the spectacular 14-16 per cent return that long-duration gilt funds delivered during those years, it was nonetheless notable against the underlying low risk in the portfolio. The fund has also delivered healthy returns in the not-so-upbeat market phases.

For instance, in 2017, a lacklustre year for the bond market, the scheme delivered nearly 6 per cent return, when gilt funds — owing to their higher maturity — delivered a meagre 2 per cent return.

IDFC Bond Fund - Short Term Plan has been a steady performer across market phases, delivering healthy returns in both boom phases and volatile/sombre markets.

Over longer three-, five- and 10-year periods, the fund has delivered about 8.3 per cent annual returns, which is noteworthy.

The scheme has delivered 6.4 per cent year-to-date, beating category returns by about 150 basis points.


The fund currently (as of May 2020) holds 93.4 per cent in AAA rated corporate bonds and 2.5 per cent in highest-rated certificate of deposits.

The average maturity is about 2.2 years and the yield to maturity is about 5.7 per cent.

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Published on July 04, 2020
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