The Quintessential "All-weather" Debt Fund

Product Review: Reliance Corporate Bond Fund
Review Date: 16th November 2016

Launched in 2014, Reliance Corporate Bond Fund (RCBF) is a relatively new kid on the block within the credit opportunities space. The fund has garnered close to Rs. 3000 Crore in a short while on the back of an impressive one-year return.

Performance
Over a 1-year period, RCBF has delivered an annualized return of 11.37 per cent. Being a relatively new fund, it doesn't have a three and five-year track record yet, but that shouldn't necessarily act as a deterrent to one's decision to invest, given Reliance Nippon Life Asset Management's (RNLAM) extensive experience in debt fund management.

Fund Management Strategy
RCBF is managed by RNLAM veteran Prashant R. Pimple. Pimple has a total experience of 15 years in Indian Fixed Income markets, and has worked with RNLAM since 2004; having managed debt funds across the duration and credit spectrum during his tenor. Apart from RCBF, he manages flagship schemes including the Reliance Short Term Fund (RSTF), Reliance Dynamic Bond Fund (RDBF), and Reliance Regular Savings Fund - Debt (RRSF-Debt). Prior to RNLAM he has worked with Fidelity Mutual Fund, India and ICICI bank.

RCBF is a pure play on private sector corporate balance sheets, and the alpha generation is through investments where there is potential for meaningful improvement in operational and financial matrices of the underlying companies going forward.

"Since we take a through the cycle view, the typical tenor of these individual investments ranges from 3 to 7 years. This provides sufficient time for these improvements to play through and in turn get reflected in terms of capital gains over and above the regular coupon", explains Amit Tripathi, CIO, Fixed Income Investments.

RCBF's strategy automatically leads to the selection of potential 'credit rating upgrade' candidates or spread compression stories. Some of their notable success stories have been PVR Ltd, Adani Transmission Ltd., Reliance Utilities & Power Pvt Ltd. and Nirchem Cement Ltd, among others.

Unlike many other funds in the credit/ corporate bond category which essentially focus more on accruals, RCBF's focus is to invest only in AA- and better rated issuers where the potential for credit upgrades is higher. This helps in the creation of alpha through spread compression.

Risk Controls & Structure
RNLAM has a large and accomplished credit research team with a proven track record across cycles over the last decade and more. Proprietary in-house credit research is a key input for portfolio construction in RCBF.

The RNLAM board-approved internal investment policy lays down clear positioning criteria for all their schemes, including RCBF. The positioning defines the ranges of duration and credit profile within which the scheme operates. Ranges are defined both at the individual security as well as the portfolio level. These definitions ensure that the basic character of the scheme doesn't change irrespective of the market environment, while providing reasonable space within the defined boundaries for fund manager specific plays.

Play for the next 12-24 months
As per inputs received directly from RNLAM's Fund Management team, the overall duration of the fund will be maintained in a range of 3-3.5 years for now, given the positive macro backdrop.

The Bottom Line
Given their crisp fund management strategy, robust risk control mechanism and scope for alpha generation, we remain positive on RCBF.

The fund is ideally suited for investors who have an investment horizon for one year and more. Since it runs a neutral duration strategy and maintains a good credit profile, it is ideal as a savings cum investment vehicle for most investors looking a core debt allocation product.

The current global and local environment calls for a prudent allocation between equities and debt, without overexposing one's portfolio to either asset class. In such an environment, RCBF is an ideal fund for parking moneys that you'd like to deploy into the markets after playing the wait and watch game for the next year or so. Those who are saving for short term goals (2-3 years) using SIP's may consider this as a viable alternative to recurring deposits as well.