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After interest hikes in 2018, the interest rate trajectory has now reversed with the RBI recently handing out a cut.
Though inflation is under control and there are expectations in the market of further easing, there is still considerable uncertainty, given the macro challenges on the twin deficits.
It would be too early to bet on long-duration funds, and in any case, it may not be easy for retail investors to make an informed choice while churning their debt portfolios.
However, select medium-duration funds that take moderate risks have become attractive. These funds are relatively less affected than long-duration ones when rates change.
Axis Strategic Bond (Axis Bond), earlier known as Axis Regular Savings, is one such quality fund that has delivered solid returns without taking major risks.
Its top holdings are in securities that have the highest ratings — AAA. Instruments with reasonable ratings (AA, A) are also part of its portfolio, though such investments are in large conglomerates or quality corporates.
Over the past five years, Axis Bond has delivered 9.4 per cent annually, making it one of the best funds in the category.
Over one-, three- and five-year periods, the scheme has outperformed the category average and peers such as HDFC Medium Term Debt, ABSL Medium Term Plan and ICICI Pru Medium Term Bond.
The outperformance over the category average has been to the tune of 1-1.5 percentage points.
In general, the SIP route is not recommended for investing in debt funds, given that cost averaging may not be significant for such schemes. Investors can buy small lump sums at periodic intervals.
Portfolio and strategy
About 80 per cent of Axis Bond’s holdings is in instruments rated AA and above (including sovereign bonds), making it a relatively safe bet. ‘A’ rated securities account for a little over 16 per cent of the portfolio and are mostly in well-established names.
The modified duration of the portfolio has generally hovered around two years.
Corporate debt, zero coupon bonds, pass through certificates and government securities are the avenues in which the fund invests.
Reliance Jio, Reliance Industries, PVR, Jubilant Life Sciences, Indiabulls Housing Finance and DHFL are some of the scheme’s top holdings.
It has also invested in a lucrative high-traffic and toll annuity generating avenue — Oriental Nagpur-Betul Highway (carries AAA rating).
Exposure to individual securities is kept at a modest 3-4 per cent of the portfolio. Axis Bond holds over 80 securities at any point in time, giving it sufficient diversity and lowering risks. The scheme does not get into instruments with ratings lower than A. Axis Bond may be a good bet for medium-term goals. Given its track record, investors with a long-term horizon of five years can also consider parking sums.
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