Kotak Bond Annual Reinvestment of Income Distribution cum Cap Wdrl INF174K01EP3

It is focused toward taking active duration bets and invests primarily in high-quality credits. The portfolio manager identifies duration opportunities through macroeconomic analysis, incorporating insights from internal and external economists.

A team-based approach drives collective decision-making in duration positioning and asset allocation. Shibani Sircar Kurian, an economist and head of research and fund manager (equity), provides insights into various factors, supporting macro-driven investment decisions. The team is further supported by three dealers and regularly collaborates on strategizing, duration management, and segment allocation. Frequent brainstorming sessions help refine optimal duration bands, segment allocations, and portfolio composition, ensuring alignment with market conditions and investment objectives. However, the portfolio manager holds the ultimate responsibility for all investment decisions and strategy implementation within their portfolios.

Credit analysis is structured across banking, nonbank financial institutions, and manufacturing debt, further classified into three tiers based on business strength, management quality, and corporate governance standards. The robust risk-monitoring team ensures that the limits are being adhered to. The investment committee provides additional oversight, enhancing the holistic nature of the process.

With its structured approach, risk oversight, and disciplined execution, the strategy maintains an Above Average Process rating.

The portfolio manager derives most of the fund’s performance from active duration positioning. The fund maintains a flexible duration range of 4.0 to 7.0 years, with the ability to reduce it to as low as 1.0 year when interest rates are unfavorable. This dynamic approach allows the manager to swiftly adjust duration in response to changing interest-rate environments. For instance, in 2018, the fund’s duration was reduced to below 2.0 years, the lowest among its peers, as the manager expected yields to remain firm amid rising interest rates. Conversely, in 2020, with benign interest rates, duration was increased to 6.78 years, capitalizing on a favorable rate environment.

Over the past year, duration was increased aggressively from late 2023 to March 2024, positioning the fund to capitalize on falling yields. The manager has used a barbell strategy, balancing long-duration bonds with shorter-term assets, which aligns with the fund’s historical strategy.

The credit quality remains high, with the portfolio predominantly allocated to government securities and AAA rated corporate bonds. The fund has been maintaining higher position in long-term government bonds, with a focus on 30-year bonds to optimize duration exposure. Corporate bond exposure remains limited (10%–15%), reflecting a preference for sovereign bonds owing to narrow credit spreads. While selecting corporate credits, the fund primarily invests in AAA rated public sector undertaking bonds and actively allocates to state development loans when spreads are attractive relative to central government securities. The fund continues to avoid lower-rated credit, aligning with its historically conservative approach.