Nippon India Corporate Bond Fund: Optimum mix of yield and safety

Launched in September 2000, the Nippon India Corporate Bond Fund has consistently ranked in the top 30 percentile of the corporate bond funds category according to the CRISIL Mutual Fund Ranking (CMFR) for three consecutive quarters up to June 2024.

As of June 2024, the fund’s assets under management stood at Rs 3,247 crore, up from Rs 2,019 crore in June 2022.

Managed by Vivek Sharma since February 2020, the fund seeks to generate and maximise income while maintaining a balanced approach to yield, safety, and liquidity through a portfolio primarily composed of debt instruments of various maturities.

Consistent performance

The fund has outperformed its benchmark (Nifty Corporate Bond Index A-II) over the past six months and in the one-, two-, three-, and five-year trailing periods. It has also outperformed its peers (funds ranked within the corporate bond fund category as of June 2024 CMFR) in the same time frames.

To illustrate, Rs 10,000 invested in the fund on April 2, 2002 (the inception date of the benchmark) would have grown to Rs 46,332 by August 22, 2024, reflecting an annualised rate of 7.08 per cent. In comparison, the same investment in the category and benchmark would have appreciated to Rs 45,452 (6.99 per cent annualised) and Rs 59,294 (8.27 per cent), respectively.

Duration management

Over the past three years, the fund’s modified duration has ranged from 1.59 years to 3.83 years, with an average of 2.37 years, compared to 2.39 years for its peers.

As of July 2024, the fund’s modified duration was 3.83 years, up from 2.58 years in July 2023, reflecting a strategy to lock in higher yields under current market conditions.

Portfolio analysis

The fund’s allocation to non-convertible debentures and bonds has averaged 76.97 per cent over the past three years. Its exposure to money market securities (certificates of deposit and commercial papers) has averaged 1.06 per cent during this period.

In the same timeframe, the fund has primarily invested in the highest-rated (AAA/A1+) securities, with an average exposure of 72.71 per cent, compared to 71.4 per cent by its peers.

The allocation to AA/AA+/AA-rated securities averaged 5.81 per cent, higher than the 4.48 per cent average of its peers.

The fund has also maintained a lower allocation to government securities, averaging 15.23 per cent compared to its peers’ 17.87 per cent.