Indian bond yields in narrow range; auction eyed

Indian federal bond yields were largely steady on Monday supported by ample cash conditions in the banking system but impending debt supplies prevented traders from adding aggressive positions.

The yield on the benchmark 10-year bond IN063520G=CC ended up one basis point at 8.07 percent after trading in the 8.06-8.10 range. Volumes were a heavy 81.45 billion rupees ($1.8 billion) on the central bank's trading platform.

"The market will be guided by what auction securities are announced for this week," said K. Ramkumar, head of fixed income at Sundaram BNP Paribas Mutual Fund.

After market hours, the government said it would sell 50 billion rupees each of the of the 7.38 percent bonds maturing in 2015 and a new 10-year bond along with 20 billion rupees of the 8.28 percent bonds maturing in 2032 on Friday.

Dealers said the announcement of a new 10-year bond sale would result in a sell-off in the existing 10-year benchmark bond and volumes would shift to the new bond eventually, leaving the current benchmark bond illiquid.

Traders are worried about the market's capacity to absorb the wall of weekly supplies as the government looks to sell 2.87 trillion rupees of bonds in the April-September period against the backdrop of the central bank tightening policy to reign in inflation.

The government has already sold 370 billion rupees of bonds since the beginning of April.

Banks parked 482.90 billion rupees in the central bank's reverse repo window on Monday, which assured the market that cash conditions in the banking system are abundant.

This was despite the 25 basis point cash reserve ratio hike which took effect on Saturday, draining about 125 billion rupees from the banking system.

Traders said they would also keep an eye on the outcome of the U.S. Federal Reserve's two-day policy meeting on Wednesday. The Fed is expected to keep interest rates unchanged near zero and repeat its pledge to keep them low for an extended period. [ECI/US]

In interest-rate futures on the National Stock Exchange, the June contract N10M0 implied a yield of 8.2814 percent.

The benchmark five-year interest rate swap ended at 6.90/93 percent, unchanged from Friday's close. [IN-SWAPS] ($1 = 44.4 Rupees)

Source: http://in.reuters.com/article/companyNews/idINSGE63P0NV20100426?pageNumber=2&virtualBrandChannel=0

Child care through mutual funds

Fund houses have balanced schemes and monthly income plans to cater to children's long-term needs.

Parents often seek the best way to save for their children. And aggressive advertising can confuse them. There are various insurance schemes, namely child plans, in the market. Also, many fund houses have schemes that cater specifically to this need.

UTI Mutual Fund, Tata Mutual Fund and Franklin Templeton Asset Management have been running schemes catering to financial planning for children for over a decade.

Such schemes offered by mutual funds are similar to either balanced funds or monthly income plans (MIPs). Being low-cost investment instruments compared to pure insurance products, these made more financial sense for child planning, said financial planners.

“Compared to an insurance product, they work out to be more cost-efficient,” said Malhar Majumder, a certified financial planner. He added, “Though diversified equity funds are the best option for any long-term goal, these schemes suit investors who keep moving in and out of mutual fund based on market conditions. Investing for children creates a psychological hurdle that prevents parents from either breaking the investments or switching.”

“That is why we accept applications only in the name of a child. This further deters parents from utilising this money for other purposes,” said Ranen Gandhi, head (products), ICICI Prudential Mutual Fund.

Structure

Most of the equity-oriented plans in this category are balanced funds. This helps in automatic rebalancing of equity and debt and even reduces the risk of volatility.

There are around six equity-oriented schemes, including ICICI Pru Child Care (Gift), HDFC Children's Gift (Investment), Principal Child Benefit SS-Career Builder, UTI CCP Advantage, Templeton India CAP Gift and LICMF Children Fund. Except for ICICI Prudential, which has a customised index, all the funds have Crisil Balanced as their benchmark.

However, asset allocation between equity and debt differs from fund-to-fund. For example, though UTI CCP Advantage is a balanced fund, it has the mandate to invest in equity up to 100 per cent and up to 35 per cent in debt. HDFC Children's Gift's (Investment) equity allocation can range from 40 to 75 per cent and debt allocation from 25 to 60 per cent.

Equity allocation of over 65 per cent makes these funds more tax-efficient. There is no long-term capital gains tax for the unitholder if the fund maintains equity allocation at 65 per cent of the overall corpus.

Within debt, there are six funds, including ICICI Pru Child Care (Study), UTI CCP Balanced, HDFC Children's Gift (Savings), Magnum Children's Benefit Plan, Templeton India CAP Education and Tata Young Citizens.

The equity-oriented schemes were suitable for children under 13, as equity investment required long-term investments, said financial planners. Later, one can move the money into debt-oriented plans through a systematic withdrawal plan, as you get closer to your financial goal.

A person investing in these schemes can also opt for lock-in. For example, HDFC Mutual Fund offers a lock-in for both its funds. If a person opts for this option, the money cannot be redeemed until the child attains 18 years or until each investment completes three years, whichever is later.

Insurance

Some of these schemes also offer insurance cover. These include ICICI Prudential and Tata Mutual Fund. However, this is a personal accident insurance cover. Between the two, ICICI Prudential covers one parent for Rs 5 lakh or 10 times the units held, whichever is lower. Tata Mutual Fund covers a child for personal accident for Rs 1.5 lakh, as per the scheme's information document. “This cover is of little use to the investor. Such a product is available at a small cost elsewhere. What a parent requires is life insurance,”said Majumder.

Even for accident insurance, there would be many clauses and caveats. An investor should first gain clarity on insurance before relying on it.

Performance

In the past one year, ICICI Prudential ChildCare Gift (97.84 per cent), HDFC Children's Gift (Investment) (66.91 per cent) and Principal Child Benefit (59.80 per cent) are among the top 10 balanced funds by returns. In the debt-oriented category, ICICI Prudential ChildCare Study (25.62 per cent), UTI CCP Balanced (27.59 per cent), Tata Young Citizens (38.43 per cent) are among the top 10 schemes by returns.

AT A GLANCE
Schemes (Equity-Oriented)	5-Year	3-Year	1-Year	Equity	Debt	Benchmark	Net Assets (Rs Cr)
ICICI Pru Child Care-Gift	19.22	11.53	97.84	65-100	0-35	50% mid-cap & 50% small-cap	153.93
HDFC Children's Gift Inv	15.97	12.22	66.91	40-75	25-60	Crisil Balanced	225.57
Principal Child Benefit SS-Career Builder	23.46	14.65	59.80	65-75	25-35	Crisil Balanced	30.13
UTI CCP Advantage-G	9.06	11.61	44.91	70-100	0-35	Crisil Balanced	48
Templeton India CAP Gift-G	-	9.86	44.71	40-75	25-60	Crisil Balanced	6.7
LICMF Children Fund-G	-	-11.42	39.36	0-70	0-100	Crisil Balanced	7
Tata Young Citizens	14.17	8.99	38.43	0-50	0-50	Crisil Balanced	175.83
Schemes (Debt-Oriented)
ICICI Pru Child Care-Study	12.68	10.65	25.62	0-25	75-100	Crisil MIP BI	30.97
UTI CCP Balanced	11.88	9.27	27.59	0-40	60-100	Crisil H 60:40	2,780.52
HDFC Children's Gift Sav	9.56	12.24	22.84	0-20	80-100	Crisil MIP BI	60.11
Magnum Children's Benefit Plan	8.83	7.44	15.09	0-25	0-75	Crisil MIP BI	21.84
Templeton India CAP Education	8.22	6.21	12.14	0-20	80-100	Crisil MIP BI	1.42
Source: Value Research; Returns as on April 23

“We get long-term money and only from retail investors, that's why the corpus of such scheme is small. However, this helps to construct the portfolio accordingly. Most of the funds in this category are consistent, if not star performers,” said Gandhi.

Investments

When planning for a child's future, a person should always keep adequate insurance, said financial planners. Without relying on insurance bundled with the scheme, a parent should take a low-cost term plan that covers the child in case of death of the parent.

Source: http://www.business-standard.com/india/storypage.php?autono=393093

Product Crack | Kotak Credit Opportunities Fund

Name of new fund offer (NFO)

Kotak Credit Opportunities Fund

What is it about?

It would invest significantly in debt papers with a maturity of up to one year, and also those maturing after a year. On the basis of the maturity, the NFO would position itself between Kotak’s short-term bond fund and long-term bond fund.

What works?

It has a potential for aggressive investors looking for a relatively shorter duration but seeking more returns than what a typical short-term fund would give. As Kotak’s Short-Term Bond Fund (KST) invests in debt papers with a duration of 5-12 months, the new fund is an aggressive option to KST. Kotak Mutual Fund’s debt fund management enjoys good pedigree and has delivered consistently.

What doesn’t?

Understanding the duration is necessary to get the most out of any debt fund, especially the risky ones. Say, a fund has a duration of a year and you withdraw within two months, the returns may disappoint. Since this fund aims to have a chunk of its assets that mature in a year’s time, it may be too aggressive for investors seeking to invest for 3-6 months. Also, as per its offer document, it gives its fund manager flexibility to be almost on a par with its short-term fund, which could be a risk in the long run.

Money Matters Take

KST is a safer choice if you wish to invest conservatively over six months to up to a year. The NFO may offer something new, from what KST offers, but how well it is able to differentiate itself from short-term funds is to be seen. Too many products confuse the investor, especially if there is choice. Aggressive short-term funds may be an option.

Source: http://www.livemint.com/2010/04/26205635/Product-Crack--Kotak-Credit-O.html