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CIMA Gallary

Bond funds in vogue

Calcutta, Feb. 4: SBI Funds Management — the mutual fund arm of the State Bank of India — is betting on the rise in demand for dynamic bond funds following a rate cut by the Reserve Bank.

“With the RBI rate cut, certain products on the fixed income side such as SBI Dynamic Bonds and Magnum Income Funds could turn out to be more attractive for the investors,” said Deepak Kumar Chatterjee, managing director and CEO of SBI Funds Management.

Dynamic bond funds like other traditional income funds invest in fixed income instruments such as corporate bonds and government securities. However, in this case, fund managers have the flexibility to manage the portfolio composition and duration depending on interest rates.

Bond values rise when interest rates fall and decline when the rates increase. When interest rates fall, the fund manager can invest a large part of the fund corpus in long-term instruments and when rates rise, funds can be diverted into short-term instruments to limit the loss.

The RBI had slashed the repo rate by 25 basis points to 7.75 per cent last month. The rate cut, the first in nine months, offers an opportunity for fund managers to consider long-term instruments.

Chatterjee said the growth in fixed income products in the first nine months ended December 2012 of this fiscal had been 90 per cent. The company’s total assets under management (AUM) in the two fixed income products is Rs 7,500 crore. Total AUM at the end of the third quarter stood at of Rs 53,000 crore.

The company has a market share of 6.8 per cent in the Rs 7.6 lakh crore AUM of the mutual funds industry.

“We expect our market share to grow to 8 per cent by the end of the next year,” he said.

 
 
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