Such an approach that pays attention is the mix of exposure to corporate bonds with arbitration options-a smart way to generate a fixed return and at the same time optimize the results after taxes. Gautam Kaul, senior fund manager-fixed income at Bandhan AMC, is of the opinion that this hybrid strategy can offer the best of both worlds: predictable income from high-quality industrial debt and low volatility gains of arbitration.
In this exclusive conversation with Etrarkets, Kaul shares why this product mix is particularly suitable for today’s macroom environment, how retail participation evolves and what investors should look when India enters a new tariff cycle. Edited fragments –
Kshitij Anand: Let me ask you, how does combining corporate bonds and arbitration strategies help you create a stable return profile for investors?
Gautam Kaul: I believe that you are referring to the new category where there is a fund of funds that feeds on arbitration or non-directive equity, as well as fixed-income income.
The idea is to offer a stable return profile. In our case, for example, the Bandhan Incomerage Plus feeds on the Bandhan Corporate Bond Fund (around 60%) and the Arbitrage Fund (around 40%).
What investors get is non-directoral exposure to shares and exposure to corporate bonds. In our case it is the strategy to manage the bond rights between one up to four years. The icing on the top is of course the tax benefit after two years it is eligible for long-term profit (LTCG). It is therefore a much more efficient way to assign to fixed -income values. A challenge we had found many investors for, that, although they wanted to allocate to fixed -income income, the tax change introduced in March 2023 hesitated them due to the imposition of capital profit in the short term, even with long -term investments.
This fund not only offers a stable return profile, but also offers a much better experience after taxes for investors.
Kshitij Anand: Can you actually explain what the Bandhan income plus arbitration fund is of funds, and how it differs from traditional debts or arbitration funds?
Gautam Kaul: The Bandhan Income Plus is a fund of funds. For those who are not familiar with the concept, a fund of funds is a fund that in turn invests in other funds. So you get a combination of different funds in one package.
In our case, the strategy is to allocate 35-40% of the inflow to the Arbitrage Fund and the rest to the Bandhan Corporate Bond Fund. As mentioned earlier, the aim is to make a stable return profile through non-directing share exposure.
We believe that for most debt investors the majority of their investments should ideally be in the course of one to five -year duration, which forms the core of their long -term referral in the long term.
This fund of funds, combining arbitration and corporate bonding strategies, determines that exposure in a more tax-efficient manner.
Our Corporate Bond Fund has been assessed, which means that the average assessment of the portfolio must be maintained at AAA at all times.
The aim of the corporate bonding fund itself is to maintain a very high -quality, liquid portfolio that offers a stable investment experience.
And because it is a corporate bond fund, the idea is that investors will usually earn a spread on the sovereign interest curve.
Kshitij Anand: Let me also get your perspective on interest movements. We have already seen a 50 -base point by the RBI, and the central bank is expected to cut further in the coming 12 months. How are funds like yours positioned to take advantage of or to be influenced by a falling interest rate environment?
Gautam Kaul:
What I think is that long -term fixed income is often a tactical game for investors. With equity you can invest for the long term, but bond investments are usually more tactical – if the RBI lower the rates, investors step in and go out as soon as the benefit has been realized.
However, one must look beyond the speed reductions. Although the tariff reductions are clearly important and an important contribution to Mark-to-Market profits for investors, there is more to the story.
At the moment the market seems reasonably distributed – will the RBI have to cut further, and if so, when? That is part of the story.
The other part is about looking at relative ratings and identifying segments of the yield curve that offer value, even in the absence of a speed reduction.
So if you think of fixed -income values, therefore consider it part of the allocation of assets in the long term. Within that context, portfolio managers such as we use all the value to use on different points on the curve.
Just as things are today, given that both growth and inflation are somewhat expectations, there is probably a reason for speed reductions.
What is even more important is that the reserve bank already offers liquidity – first via Omos and then via the CRRSnit, which will take effect from September.
This should lead to a reasonable demand for both high -quality corporate bonds and government effects.
From the perspective of a portfolio construction, depending on your appetite for expensive, you can take into account five to seven-year G-SECs or corporate bonds.
For those with a longer investment horizon and more appetite for volatility, we believe that long -term government effects offer considerable value.
For example, a 30-year-old G-SEC offers a huge potential-not only as a tactical game-to-market game, but as an investment in the long term where you can lock an attractive annual return over three decades of a credit from an India government.
Kshitij Anand: Let me also get your perspective on the side of the retail trade. Retail investors seem very bullish about shares, with SIP flows of more than £ 27,000 crore. But do they also show interest in short -term company bonds, or is the question largely institutional?
Gautam Kaul:
I think that the industry has not only done great work in promoting investment funds, but also in strengthening the concept of asset distribution. Many concepts in finance that may seem boring – such as asset spreading – are actually what works best in the long term.
Retail investors start to appreciate that a long -term share journey and the composition that makes it possible are more important than trying to make large, one -off allocations.
A correct asset spread ensures that your composite journey is not disturbed at the wrong time. Fixed income also acts as a stabilizer in portfolios, and that need is increasingly being recognized.
There was rather some hesitation, especially since the experience after taxes was not favorable. But with the introduction of new products we see traction of both retail and institutional investors. In absolute figures, institutional investors stand out because of the large ticket sizes they bring.
But in terms of the number of investors, we see a strong interest rate in categories of categories for corporate bonds in the short term to gilded, dynamic and long-term fund categories.
Both retail and HNI investors have been in larger numbers for the past six to twelve months.
(Disclaimer: recommendations, suggestions, views and opinions of experts are their own. These do not represent the views of economic times)
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