Short-to-medium debt: Active play pays dividends for ICICI MF's Banthia

ICICI Prudential's short-term and medium-duration funds outperformed on the back of timely shifts in strategies

Managing a short-term debt fund might appear to be an easier job in the fund management space, since the mandate allows little room to take duration or credit risk. However, ICICI Prudential Mutual Fund’s Manish Banthia has consistently found ways to derive the best out of the limited management scope available in these funds.

“I may not trade on an everyday basis but my portfolios look very different at different points of time,” says Banthia, winner of the Business Standard Fund Manager of the Year 2022 award in the Debt – short- to medium-duration category.

Two of the funds managed by Banthia — ICICI Prudential Short Term and ICICI Prudential Medium Term — beat the benchmark in both one-year and three-year periods, and were the best performers in their respective categories, data from Morningstar shows. To give some numbers, the Short Term Fund delivered 4.66 per cent and 6.35 per cent in the one-year and three-year periods, respectively, while the benchmark index delivered 3.75 per cent and 5.95 per cent (see table).

The three-year performance shows that Banthia’s mantra of actively managing the funds paid dividends in the post-Covid-19 period, during which he deployed different strategies almost every year to tide over interest-rate uncertainties.

For example, he used the barbell strategy in 2022 to benefit from the rise in 10-year yields. “The curve was very steep. While the longer- duration bonds were attractive, the shorter end of the curve was expensive. So, we bought 14-year papers and kept cash in the portfolio instead of low-to-medium duration papers,” Banthia explains.

The strategy not only benefited the schemes by way of higher yields from longer-term papers, but also shielded them from interest-rate hits when the yields started to go up at the shorter end of the curve.

Apart from the tenure, fund managers can strategise through different kinds of bonds. In 2022, when the Reserve Bank of India was raising the policy rate, fixed-rate bonds were set to take a hit, so the schemes increased exposure towards floating-rate bonds.

“Then you can change the portfolio depending on which segment among AAA corporate, SDLs (state development loans) and government securities looks cheaper,” says Banthia.

However, things may not be as easy as they look. Deploying the right strategy at the right time can only happen if one has a robust framework to analyse the market situation, and fund managers can save themselves from falling prey to “sentiments or attractions and distractions from the market”.

This is where the challenge lies: Going against the tide in the market. “When your decisions are not in line with the market, it creates stress. But with time you get used to it,” says Banthia.

According to him, the solution also lies in taking both those within the organisation as well as investors into confidence. He therefore lays a lot of emphasis on communicating his thought processes regularly to win investors’ trust. But even the best of frameworks and processes cannot always help make the right decision, he believes.

“Finally, luck plays a big part and it has been on my side,” Banthia admits with a smile.