DEBT FUND ANALYSIS

DEBT FUND ANALYSIS

Oct 01, 2008 – Oct 15, 2008

DEBT FUND ANALYSIS

Debt Market OutlookDebt Market Update

Debt Portfolio Strategy

Liquid Plus Funds are still a safer bet from a short term (3-6 months) horizon

The current FMP yields are high and may not sustain in the long run, therefore investment in long term FMPs is recommended

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Market movements

The G-sec market was on a negative note as bears clawed down the bond prices on back of tight liquidity and devolvement of the 7.94% 2021

The 10-year bond is trading at a four week high of 8.73% and the auctioned bonds are trading over 10bps above their cut-offs, participants found these

levels too lucrative to miss

Annual inflation for the week ended September 20,

2008, witnessed a pull back falling below the 12% mark to 11.99%. Major contributor to this fall was a pull back in primary articles and food products

Liquidity/borrowings:

Liquidity remained constrained for issuers of non-convertible debentures on October 1; the LAF repo reporting the highest-ever borrowing of INR 917.20

bn

Participants remained cash-starved during this non reporting week, as investor demand for fixed income instruments continued to reel (dwindle) under advance tax outflows of INR 400 bn; the daily

average LAF repo at INR 908.40 gained INR 270 bn over the previous week

Liquidity is expected to ease from current levels. A steep rise in inflows on account of redemptions and

interest payments will inject money into the system

Participants are likely to have made their CRR provisions this will reduce overall pressure on

liquidity

Overnight money market rates are expected to

soften from present levels; improvement of 200-300bps will not be surprising

DEBT FUND ANALYSIS

Recommended Debt MF Categories

Liquid Plus Funds:

These funds have favorable portfolio composition. These funds are expected to invest close to 40% on higher

side and 25% on the lower side in Corporate Bonds with maturity above 1 year

These funds are able to take advantage of rise in Overnight rates and also increase the portfolio yield by taking call in high duration bonds. In the current scenario where overnight rates are expected to remain high

and yields on corporate bond to ease slightly from current levels. These funds are better positioned to take advantage of both the scenarios

These funds provide an indirect bet on Short to Medium term bonds. In case of 100% investment in these

bonds an investor can be subject to mark to market compulsion and any rise in rates is likely to hurt the return on investment. However, with investment in Liquid Plus Funds an investor can take advantage of spread investment strategy of these funds

These funds are treated as an income fund and are exempt from the rise in Dividend Distribution Tax. Old rate of Dividend Distribution Tax is applicable to these funds

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DEBT FUND ANALYSIS

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DEBT FUND ANALYSIS

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DEBT FUND ANALYSIS

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DEBT FUND ANALYSIS

Recommended Schemes in Liquid Plus Funds

Liquid Plus Funds – Retail & Institutional

Birla Sun Life Liquid Plus Fund

DWS Liquid Plus Fund

ICICI Prudential Flexible Income Plan

Reliance Liquid Plus Fund

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DEBT FUND ANALYSIS

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DEBT FUND ANALYSIS

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DEBT FUND ANALYSIS

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DEBT FUND ANALYSIS

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DEBT FUND ANALYSIS

Recommended Debt MF Categories

Fixed Maturity Plans:

Product with various maturities

• FMPs are available with numerous maturity options –1 month, 3 months, 6 months, 1 year, 3 years and 5 years. One can invest in the relevant plan depending upon his investment horizon and the requirement of cash flows on maturity

Minimal risk

• Unlike debt funds, which are exposed to three kinds of risks viz. interest rate, credit and liquidity risk, FMPs are a better option

• FMPs are least exposed to interest rate risk as the fund manager holds the instruments till maturity getting a fixed rate of return. Thus FMP can manage to get a specific interest on these instruments and investors have a fair idea about it. This helps investors tailor their investments as per their future cash requirements

• They primarily invest in AAA, P1+ or such kind of good rated credit instruments with maturity profile of the securities in line with the maturity of the plan so there is also low credit risk with minimal liquidity risk

involved

Tax Efficient Returns

• FMPs yield competitive & tax efficient returns as the tax rates on a FMP are comparatively lesser than the

tax rates in other debt funds

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DEBT FUND ANALYSIS

FMPs with tenure less than 1 Year

Name of the Scheme TenureClosing

DateMin.

Investment

Indicative Yield (Pre

Tax)

ING Quarterly FMP 91 – Series A3 (Insti.) 91 Days 06-Oct-08 500,000 11.35%

ING Quarterly FMP 91 – Series A3 (Reg.) 91 Days 06-Oct-08 5,000 10.55%

HDFC FMP 90D September 2008 (Insti.) 90 Days 06-Oct-08 10,000,000 11.70%

HDFC FMP 90D September 2008 (Reg.) 90 Days 06-Oct-08 5,000 11.60%

UTI Fixed Income Interval Fund - Series II - Quarterly Interval Plan VII (Insti.)

3 months 06-Oct-08 1,000,000 11.60%

UTI Fixed Income Interval Fund - Series II - Quarterly Interval Plan VII (Reg.)

3 months 06-Oct-08 10,000 11.40%

DSPML FMP -3M - Series 16 (Insti.) 3 months 06-Oct-08 10,000,000 11.90%

DSPML FMP -3M - Series 16 (Reg.) 3 months 06-Oct-08 10,000 11.70%

DSP Merrill Lynch FMP - 1M - Series 3 (Insti.) 1 months 06-Oct-08 10,000,000 11.90%

DSP Merrill Lynch FMP - 1M - Series 3 (Reg.) 1 months 06-Oct-08 10,000 11.85%

ABN AMRO Interval Fund – Series 2 - Quarterly Plan N 3 months 06-Oct-08 10,000 11.95%

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DEBT FUND ANALYSIS

FMPs with tenure more than1 Year

Name of the Scheme TenureClosing

DateMin.

Investment

Indicative Yield (Pre

Tax)

TATA FIXED INVSTMENT PLAN Series 4 Scheme B (SHIP.) 18 months 16-Oct-08 10,000,000 11.40%

TATA FIXED INVSTMENT PLAN Series 4 Scheme B (HIP.) 18 months 16-Oct-08 2,500,000 11.00%

TATA FIXED INVSTMENT PLAN Series 4 Scheme B (RIP.) 18 months 16-Oct-08 10,000 10.60%

JM FMF -XIII - Yearly Plan (Insti.) 375 Days 15-Oct-08 500,000 11.40%

JM FMF -XIII - Yearly Plan (Reg.) 375 Days 15-Oct-08 5,000 10.75%

Kotak FMP 19M Series 1 (Insti.) 19 months 13-Oct-08 1,000,000 11.40%

Kotak FMP 19M Series 1 (Reg.) 19 months 13-Oct-08 5,000 10.60%

BIRLA SUN LIFE FIXED TERM PLAN - SERIES BG  (370 Days) (Insti.) 370 Days 08-Oct-08 10,000,000 11.35%

BIRLA SUN LIFE FIXED TERM PLAN - SERIES BG  (370 Days) (Reg.) 370 Days 08-Oct-08 5,000 10.75%

IDFC Fixed Maturity Plan Nineteen Months Series 1 (Insti.) 19 months 07-Oct-08 10,000,000 11.00%

IDFC Fixed Maturity Plan Nineteen Months Series 1 (Reg.) 19 months 07-Oct-08 5000 11.00%

ABN AMRO Fixed Term Plan - Series 14: Plan A (Insti.) 370 Days 06-Oct-08 2,500,000 11.30%

ABN AMRO Fixed Term Plan - Series 14: Plan A (Reg.) 370 Days 06-Oct-08 5,000 10.70%

ING Yearly FMP 366 - Series A2 (Insti.) 366 Days 6-Oct-08 500,000 11.35%

ING Yearly FMP 366 - Series A2 (Reg.) 366 Days 6-Oct-08 5,000 10.55%

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DEBT FUND ANALYSIS

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DEBT FUND ANALYSIS

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