This fund was launched in 2004, till mid-2008, it had a patchy existence.
Since then, it has done a good job of fulfilling its basic goal of capturing price movements dynamically, without taking excessive risk.
For instance, in 2008-end, when the Reserve Bank of India opened the floodgates of liquidity, funds that increased their maturity sharply to 10 years and above made gains of 10-20 per cent.
In the next quarter, most of these funds were caught on the wrong side of the yield curve.However, Dynamic Bond stayed within limits, gaining a healthy 6.4 per cent in December 2008 and managed to stay positive with a return of 1.3 per cent in early 2009. Since then, it has been following the strategy of conservative exploitation of opportunities.
The investment objective of this scheme is to optimise returns by designing a portfolio to dynamically track interest rate movements in the short-term by reducing the duration in a rising rate environment, while increasing it in a falling rate environment.
The investment strategy would revolve around structuring the portfolio so as to capture the positive price movements and minimise the impact of adverse ones. To maximise returns and gain maximum value out of securities, the fund managers may look at curve spreads on both the gilt and bond markets.
This fund is a good choice for investors who are looking for a dynamic, yet safety-oriented profile.
CANARA ROBECO INCOME
The fund has been in existence since September 2002, but, it made its mark only in 2008.
With a return of 29.95 per cent, it was the best performer in its category, giving second highest return by any debt fund, ever. That was no stroke of luck. It performed superbly in 2009, with a return of 6.84 per cent (category average, 0.24 per cent).
This open-ended debt scheme generates income through investments in debt and money market securities of different maturity and issuers of different risk profiles.
The scheme will invest in money market instruments (with un-expired maturity of less than a year) and rated, unrated corporate bonds and debentures. The allocation to debt will vary between 80-100 per cent.
The fund manager actively manages the maturity of the portfolio. For most of 2008, the average maturity was less than a week. But in September 2008, it shot up to 5.7 years and again came down to 1.25 years the next month.
This nimble-footed strategy was again seen in 2009, when the fund took its average maturity to 7.5 years (June) from just 1.2 years (May 2009). Interestingly, over the past three years, the fund's average portfolio maturity is lower than the category average.
The fund maintains a well-diversified portfolio with a mix of long- and short-term instruments. In the last 18 months, it invested mostly in debentures (32 per cent), overnight paper (23 per cent), GoI securities, certificate of deposits (17 per cent) and treasury bills (13 per cent). Generally, it invests in P1+ rated short-term paper. It has never invested in below AA rated long-term paper.
The churning has come at a cost and it is among the most expensive funds in the category.
FORTIS FLEXI DEBT REGULAR
This is an aggressive fund that has mostly generated returns to match. Its agenda is to actively vary its stance, based on the yield outlook. In the last two years, this has resulted in a volatile but satisfactory performance.
The sudden monetary loosening towards 2008-end saw it go aggressively long and generate excellent returns. When the flip side started playing in 2009-mid, it made losses. However, for the investor who was looking to actively chase trends, the overall result was as desired.
The main objective of this fund is to generate income through a range of debt and money market instruments of various maturities to maximise income, while maintaining an optimum balance between yield, safety and liquidity.
The debt portion of the portfolio will be actively managed, based on the fund house's view on interest rates. By actively managing the portfolio, the scheme attempts to achieve its objective by way of both interest yield and capital appreciation.
The portfolio may also include liquid assets and other short maturity assets, especially during rising interest rates.
Debt instruments with maturity of over a year will form 70-90 per cent of the portfolio. Money market instruments (cash/call/reverse repo) and debentures with maturity of less than a year will form 30-100 per cent. Debt instruments may include securitised debt up to 60 per cent, while exposure to derivatives will be 50 per cent.
From a long-term perspective, the fund has managed to stay closer to the top of its peers for four years. All in all, it has done its job of actively anticipating yield trends to generate returns.