We aim to combine a conservative debt fund with a small equity exposure. The debt portion provide a steady return while additional returns are gained through the equity exposure, which is capped at 15 per cent.
The equity component induces some volatility but provides superior returns. The fund has also been paying monthly dividends for more than three years. We will maintain this strategy.
The fund's exposure to equity is higher than the category's. What is the rationale behind this? Which stocks or sectors would you prefer this year?
The fund's exposure to equity is in line with that of other funds in the category. We follow a conservative duration strategy, compared to a pure bond fund, for the debt portion to earn a steady yield with low volatility.
Going forward we foresee an equity exposure between 12 and 15 per cent of assets primarily in the banking, engineering, software and pharmaceuticals sectors.
In view of the hardening interest rate scenario, what is your outlook for the debt markets?
Interest rates are in a cyclical upturn phase. Inflation, liquidity, economic growth and the government borrowing programme will impact the interest rate markets.
We expect inflation to stay steady around 5 per cent and may even ease over the months to come. Concerns over liquidity in the banking system and an increase in commercial credit demand from banks in view of the robust economic growth are low on account of the surplus liquidity locked up with the Reserve Bank.
But the government's borrowing programme has exerted pressure on bond yields.
