DebtFund Analysis 16 Jun 30 Jun08

							 DEBT FUND ANALYSIS




DEBT FUND ANALYSIS


                      Jun 16, 2008 – Jun 30, 2008
DEBT FUND ANALYSIS

 Debt Market Update                                       Debt Market Outlook
 Market movements                                          It has      been observed that in reporting weeks
                                                            liquidity   is ample. Considering the current scenario,
  Liquidity was tight and to make the situation worse,
                                                            liquidity   is expected to be sufficient. This can result
   the RBI hiked the repo rate by 25bps
                                                            in some     buying in G-Secs
  RBI increased the repo rate from 7.75% to 8%; the
                                                           Two factors that         will   influence   bond   market
   daily limit for open market operation in oil bonds
                                                            direction are:
   was also raised from INR 1,000 crores to INR 1,500
   crores                                                    Dollar movement: Any inflationary number or
                                                              comment in the US is expected to result in dollar
  Annual inflation for the week ended May 31 is
                                                              appreciation, which can push INR/USD close to
   8.75%. This is higher than the previous week’s
                                                              the 43-level. The RBI will have to intervene to sell
   number of 8.24%
                                                              the dollar, thus tightening liquidity
  Inflation has reached the seven-year high; it was at
                                                             Ease in crude prices: This will provide some relief
   8.77% on February 10, 2001.
                                                              and push up bond
 Liquidity/borrowings:
  Liquidity was tight and the average money borrowed     Debt Portfolio Strategy
   during the week from the repo window was INR
                                                           Liquid Plus Funds are still a safer bet from a short
   12,000 crores
                                                            term (3-6 months) horizon
  Tight liquidity also pushed up the weighted average
   O/N money market rates to 7.68%, compared to            Fixed Maturity Plans to offer better returns as the
   the previous week’s 5.96%                                short term rates to yield higher

  G-Secs, non-SLR, and OIS yields headed north.
   One-year OIS moved up by 45bps, one-month CD
   rates have increased by 70bps, and one-year CD’s
   have gone up by 23bps

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DEBT FUND ANALYSIS

 Recommended Debt MF Categories
 Liquid Plus Funds:

  These funds have favorable portfolio composition. These funds are expected to invest close to 40%
   on higher side and 25% on the lower side in Corporate Bonds with maturity above 1 year

  These funds are able to take advantage of rise in Overnight rates and also increase the portfolio yield
   by taking call in high duration bonds. In the current scenario where overnight rates are expected to
   remain high and yields on corporate bond to ease slightly from current levels. These funds are better
   positioned to take advantage of both the scenarios

  These funds provide an indirect bet on Short to Medium term bonds. In case of 100% investment in
   these bonds an investor can be subject to mark to market compulsion and any rise in rates is likely
   to hurt the return on investment. However, with investment in Liquid Plus Funds an investor can take
   advantage of spread investment strategy of these funds

  These funds are treated as an income fund and are exempt from the rise in Dividend Distribution
   Tax. Old rate of Dividend Distribution Tax is applicable to these funds




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DEBT FUND ANALYSIS

 Recommended Schemes in Liquid Plus Funds
 Liquid Plus Funds – Retail & Institutional

  DWS Money Plus Fund

  ICICI Prudential Flexible Income Plan

  LIC Liquid Plus Fund

  Reliance Liquid Plus Fund




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DEBT FUND ANALYSIS

 Recommended Debt MF Categories
 Fixed Maturity Plans:

  Product with various maturities

     FMPs are available with numerous maturity options –1 month, 3 months, 6 months, 1
      year, 3 years and 5 years. One can invest in the relevant plan depending upon his
      investment horizon and the requirement of cash flows on maturity

  Minimal risk

     Unlike debt funds, which are exposed to three kinds of risks viz. interest rate, credit and
      liquidity risk, FMPs are a better option

     FMPs are least exposed to interest rate risk as the fund manager holds the instruments
      till maturity getting a fixed rate of return. Thus FMP can manage to get a specific interest
      on these instruments and investors have a fair idea about it. This helps investors tailor
      their investments as per their future cash requirements

     They primarily invest in AAA, P1+ or such kind of good rated credit instruments with
      maturity profile of the securities in line with the maturity of the plan so there is also low
      credit risk with minimal liquidity risk involved

  Tax Efficient Returns

     FMPs yield competitive & tax efficient returns as the tax rates on a FMP are
      comparatively lesser than the tax rates in other debt funds


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   DEBT FUND ANALYSIS




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DEBT FUND ANALYSIS

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DEBT FUND ANALYSIS

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