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WF: You launched a dynamic bond fund in Mar 17, at a time when accrual funds were the only talking point among debt funds. How has this contrarian bet played out so far?
Mahendra: It is neither a bet nor is there anything contrarian here to start with. Mirae Asset Dynamic Bond Fund has a very well structured investment strategy. The basic idea is that investors with long term horizon should focus on maximizing returns without compromising on safety. Safety in this context needs be defined in line with the longer horizon so as to enable absorbing the inevitable intermediate volatility and thereby help improve returns. Timing is the last thing this investment strategy focuses on. Though it's been a short time, since its inception the fund has so far vindicated our thoughts and generated satisfactory returns.
WF: What were the factors/drivers that led you to take a position on this category and where do we stand today on these factors/drivers?
Mahendra: There was no debt product in our product basket for investors with long term investment horizon. It's fashionable in India to offer debt products as risk free. It's a taboo to suggest that a debt product can have volatility. Our strategy is very simple. Investor with long term horizon should focus on maximizing returns without being too fearful of volatility. With a dynamic strategy focusing on rebalancing portfolios in line with evolving market environment, long term expectations should be more positive. This is what a historical perspective also suggests. A high quality portfolio over time, notwithstanding high volatility and a couple of big events, have still delivered well on duration front.
In terms of economic indicators, outlook on global fixed income is somewhat negative as indications from Fed are for further rate hikes and an imminent start of balance sheet normalization. Domestically, inflation has under shot the most optimistic expectations and our view is that inflation will continue to surprise on down side. However, given the negative global outlook and apprehension of a rebound in inflationary pressure may result in no rate cuts immediately. So overall, outlook remains for a range bound market.
WF: How are you positioning your dynamic bond now, in light of where we are today on these drivers?
Mahendra: It's very essential to understand that Dynamic Bond Fund is a product for investors with long term investment horizon. It proposes an active management strategy. Timing of investment has, in our view, very marginal contribution to overall return profile of the product. Over the next 3 years, for example, there will be many factors in play that are not even imaginable today. Take demonetization for example. At this point, overall outlook is moderately optimistic. Positive on domestic factors but cautious on global outlook.
WF: Are we in for a gently secular decline in interest rates over the next 12-18 months or is this pretty much the last leg of the down cycle in interest rates?
Mahendra: It's very difficult a question and honest answer is we don't know. If Fed continues to hike rates and goes ahead with balance sheet normalization, it will be difficult to expect big rate cuts in India even as inflation may continue to remain low. India still needs large doses of external capital flows. One has to be very circumspect at this point, like RBI has been in last few monetary policies, and watch carefully how global outlook evolves. Our view is , at the first sign of any dovishness by Fed, there will be big room for rate cuts in India.
WF: What are your plans in the accrual funds space? What are your plans to augment your fixed income product suite this fiscal?
Mahendra: As an asset management company, we would very much want to offer the full range of fixed income products that suit varied investors risk profile and time horizon. An accrual oriented fund is very much under plans and offer document has already been filed with regulators. At the appropriate time, our company will be able to offer more information on this. Focus will be on accrual income from good quality credits.
WF: Retail debt flows seem to be heavily focused on ultra short term, short term and accrual funds. What are your plans to gain meaningful market share in retail debt flows over the next 12-18 months?
Mahendra: Our single plan is to improve investor experience with our company in terms of returns, portfolio quality, clarity on investment strategy, in terms of other services etc. If we can keep our focus right, investors will certainly notice that. Debt investors are fast realizing the value add that debt mutual fund offer. And due course, one would expect a far bigger shift of debt investors to mutual funds.
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