Debt Bet

Minimum subscription : Rs 5000

Closes on : November 19, 1997

Fund manager : Sundaram Newton AMC

The new bond saver mutual fund scheme can give investors decent returns with the safety of a debt instrument.

Sundaram Finance has come out with a new mutual fund --Sundaram Bond Saver. The objective of the fund is to earn regular income by investing in fixed income securities. The income can be either paid as dividend or reinvested, at the option of the investor.

According to the fund managers, at any point of time the fund shall remain invested to the extent of at least 65 per cent in debt instuments. The range of debt instruments includes government securities, bonds and commercial papers. Apart from this, the fund shall invest upto 25 per cent in equities. Also investment in money market instruments like call money, notice money and company fixed deposits will be made, as permitted by the regulatory bodies, from time to time.

 

But the point of concern is the lack of liquidity in the Indian debt market. Given the size of the secondary debt market, it seems unlikely that the fund will be able to invest 65 to 100 per cent in debt. The fund managers expect to counter this problem by earmarking a certain portion of the fund for investment in government securities, top rated PSU debt and money market instruments, all of which have high liquidity. Further, it will be investing only in instruments rated investment grade and above by the recognised rating agencies. In this case, the downtrend in the interest rates will be a major factor in preventing high returns.

At present, interest on bank deposits is around nine per cent. The moot question is will the fund be able to beat the bank deposits in terms of returns?

If the funds are deployed in government securities, then it is not difficult to get a yield of around 10 to 12 per cent. For an investor who cannot avail of section 80L, this investment can give higher returns than bank deposit or any debt investment.