Bandhan Bond Fund - Medium Term Plan Direct Plan Bi-Monthly Payout of Inc Dis cum Cptl Wdrl Opt INF194K01T59

The strategy is structured in a way to safeguard investors from credit risk. Therefore, investments are made only in AAA rated and highly liquid corporate bonds or government securities. The fund is a part of medium-duration category, hence its Macaulay duration is maintained between three and four years or between one and four years in case of anticipated adverse situation. Hence, neither credit nor big duration bets are part of the investment approach.

For investments in corporate bonds, the team lays a lot of emphasis on the promoter group, its track record, and corporate governance standards. Suyash Choudhary will not lend to a company facing corporate governance issues. Additionally, he also looks at a company's competitive standing in relation to peers, its practices, cash flows, liquidity profile, and business and financial risks, among others. The strategy of not taking credit risk differentiates it within the category, where several peers invest a portion of their portfolio in lower-rated securities.

In a scenario when going down the credit ladder is beneficial, this fund will lose to peers who take credit bets. But it will outperform peers in a risk-averse environment or when the scenario supports taking some duration bets within the defined mandate. Having said that, a moderate approach toward credit could make this strategy more competitive within the peer group. Given these attributes, the process receives an Above Average rating.

Suyash Choudhary constructs the portfolio with high-credit-quality instruments. The focus is on safety and liquidity, which is largely to keep volatility under control. However, he constructs the portfolio with a fluid investment style by investing in a mix of high-quality corporate bond, money market instruments, and government securities. The allocation between them is decided after studying the bond spreads, liquidity, relative valuations, and market scenarios. Choudhary is adept at making quick adjustments in the portfolio given the change in his thesis, underlying scenario, or during uncertain times. For instance, he built cash positions in June 2021, November 2021, and February 2022 given uncertainty over rate action by the Reserve Bank of India. However, he quickly restored the same to normal levels in the subsequent months.

More recently, the manager has notably increased the corporate bond allocation from 1.9% in Oct 2023 to 51.6% in Feb 2024. Subsequently, the government bond exposure in the portfolio has come down from 95% to 45.2% over the same period. This shift could be attributed to the widening of the spread at the shorter end of the yield curve and improved liquidity, alongside strengthening corporate balance sheets.

Choudhary does not hesitate to hold significant exposure in one market segment if the risk/reward is favorable. For instance, from 2019, the exposure to government bonds in the portfolio has consistently risen and, until recently as of November 2023, accounted for 92% of the portfolio. Choudhary has also increased the fund’s duration in the recent months up toward the higher end of the defined duration range, given stable economic indicators and his belief that India is amid a macroeconomic rerating. The modified duration therefore has been increased to 3.79 years in February 2024 from 2.99 years in December 2022.