- NFO opened on January 15, closes on January 28, 2025
- Potential for mark-to-market gains once interest rates begin to decline
‘A risk reward profile for Short Duration Funds for a horizon of 12 to 18 months’
Union Mutual Fund has marked its entry in the Short Duration Fund – Debt Fund category with the launch of Union Short Duration fund (An open-ended short-term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 1 Year to 3 Years. Please refer Page No. 20 of the SID for concept of Macaulay Duration. A high-interest rate risk and moderate credit risk.)
Debt Funds including Short Duration funds, in addition to, accrual returns offer the potential for mark-to-market gains when interest rates decline. Short Duration Funds relatively stand out as an appealing option for those seeking to invest in debt and money market securities for a moderate period of 12 to 18 months. As per AMFI data, Short Duration Funds currently has 23 schemes with Net Assets Under Management of Rs 113,266 crores as on December 31, 2024. Basis SEBI guidelines, these funds maintain a Macaulay Duration between one and three years, which aims to maintain low to moderate sensitivity to interest rate fluctuations.
The fund will be managed by Mr. Anindya Sarkar and Mr. Shrenuj Parekh.
The significant strengthening of the dollar has put pressure on the Indian Rupee which in turn has tightened systemic liquidity prompted by Reserve Bank of India’s forex measures. This has led to elevated yields and spreads thus providing investors with an opportunity for higher accrual by investing in high yield assets.
Commenting on the launch, Mr. Parijat Agrawal, Head- Fixed income of Union AMC said “As liquidity conditions improve, we can anticipate a compression in these spreads. Additionally, the credit environment remains favourable. The leverage ratio (debt to equity ratio) for Indian corporations is on a downward trajectory, and the credit rating ratio—reflecting the number of upgrades versus downgrades—stood at 2.75 times (Source: Crisil Ratings) for the first half of FY25, which is above the long-term average.”
The fund house believes that with a current credit environment, high spreads, and accrual levels, there is potential for mark-to-market gains as interest rates begin to decline and spreads narrow over time leading to a risk-reward profile for short-duration funds.
Mr. Madhu Nair, CEO, Union AMC remarked “Short-term spreads are attractive at their current elevated levels, and there is an expectation for them to normalize going ahead. We believe that an anticipated supportive monetary policy and expectation of easing liquidity conditions can make short-duration funds attractive for investors.”
