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What’s out: Funds that exited Mint50

LiveMint logoLiveMint 05-06-2017 Kayezad E. Adajania

Here is a list of schemes that exited Mint50

Tata Short Term Bond Fund: Change of fund managers is the prime reason why Tata Short-term Bond Fund (TSBF) goes out of Mint50. It was earlier managed by Akhil Mittal. After Murthy Nagarajan moved from Quantum Asset Management Co. Ltd to Tata Asset Management Co. Ltd (Tata AMC) in April 2017, Tata AMC appointed him as the head of fixed income. In a shuffle of funds that followed, TSBF was handed over to Nagarajan. Mittal avoided taking credit risks and had been investing in good-quality scrips, mainly AAA-rated with a few AA-rated companies thrown in. Mittal also used to invest in government securities as a means to capitalize from interest rate movements.

Nagarajan told us that he will now avoid AA-rated instruments altogether. “When we compared our portfolios with other schemes that had a similar mix of AAA-rated and AA-rated assets, we realised that despite a minuscule portion in AA-rated assets, they could cause a lot of damage if one or few of such securities delay in interest payments or, worse, default,” he says. He added that he would continue to use government securities depending on his view of interest rates.

In our view, a change in management was not really necessary since Mittal had done a fine job so far. Existing investors should switch to some of the other short-term funds in Mint50.

Franklin India Short Term Income Fund: All through Franklin Templeton Asset Management (India) Pvt. Ltd’s turbulent period in 2015, when the first signs of a credit default—and its disastrous impact on mutual funds—came and then later when the fund house’s own debt schemes sold their own holdings in Jindal Steel and Power Ltd (JSPL) debt securities at a loss; we had held on to Franklin India Short Term Income Fund (FSTIF) in Mint50. FSTIF was its only debt scheme in Mint50. Reason: despite a high-risk portfolio of low-rated securities that could spook out the ordinary investor, we had faith in fund manager Santosh Kamath who had otherwise managed the portfolio deftly, leaving aside the JSPL fiasco. Its 1-year return for most weeks ending in 2017 was around 10-11%; one of the best in the category. Of course the fund took very high risks to achieve that, something not all funds would—and rightly so— be doing. So what went wrong? According to Franklin Templeton AMC’s annual report for the year ending September 2016 (October to September calendar), it turned out that the AMC had bought over JSPL’s papers from the debt schemes of Templeton in 2016 (see here: bit.ly/2ryjLUU). At the time, the AMC had not disclosed this. The AMC bought the paper from the scheme, at what seemed like a discount. Plus, it played the dual role of the price setter as well as the buyer (instead of say, appointing an external valuer). This left a bitter taste in our mouth.

The fund house may have ticked the regulatory boxes, but this raises corporate governance issues, especially when, according to news reports, two other fund houses recently took some companies to the National Company Law Tribunal for defaulting on their payments.

Edelweiss Absolute Return Fund: This fund got included in Mint50 nearly 2 years ago. What we like about it was that the absolute return mandate it achieved by combining derivative hedging and long equity strategy. This meant that the fund would strive to get positive absolute return regardless of the market condition and at the same time aim to minimise volatility and downside.

The aim was to limit the downside to 20% of the fall in Nifty and achieve at least 60% participation in Nifty upside returns. This objective was being met almost 90% of the time in 1 year returns and around 95% of the time in 3-year returns. Through a large part of 2016 however, it was not able to do so. According to Karthik Sorel, the fund manager for this scheme, “Firstly, a sudden sharp fall in the markets towards the end of 2015 made the hedging strategy ineffective. It took some time for the fund to recover from this. At the same time, the fund portfolio which was more inclined towards IT and healthcare stocks did not participate in the rally.” As a result, returns suffered to the extent that neither the upside participation nor the downside protection was achieved for most of the year.

In April, the fund was renamed to Edelweiss Dynamic Equity Advantage Fund. The structure of the fund also changes with the inclusion of debt and a more aggressive equity strategy. Additionally, the mandate is no longer to try for positive absolute return with minimum volatility. Rather the fund is now firmly in the dynamically managed balanced fund category and aims to compete with others in that space.

The performance gaps combined with the sudden change in structure negate the reason for which we had included this fund in our selection. We feel it now will be managed more aggressively and relative performance against the peer set will have to be seen before investing. We advise exiting from this fund.

Birla Sun Life Credit Opportunities Fund

This fund was earlier known as Birla Sun Life MIP II - Savings 5 Plan (BMIP5). The scheme comes with a good track record but recently the fund house changed the names of the funds. The change suggests that the contours of the fund have also changed (read here: bit.ly/2rmKRPi).

Going by the new name of the scheme, it’s highly unlikely that Birla Sun Life Credit Opportunities Fund (BCOF) will invest in equities. Sell and switch your proceeds to any of the MIP funds in Mint50.

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