A conservatively managed debt fund that manages its portfolios based on interest rates movements with a portfolio of Govt Securities and high rates PSU Bonds only.
This is a debt fund with an investment objective
to generate income and capital appreciation through active management of a portfolio consisting of short term and long term debt and money market instruments.
The investment objective seems all encompassing. However, the fund has a mandate to avoid credit risks.
Below is the Asset Allocation table from the Scheme Information Document.
One thing that clearly stands out is the exclusion of corporate bonds from the asset allocation table.
In reality, the fund prides itself in the fact that it doesn’t take any credit risks. The investment universe of the Quantum Dynamic Bond Fund is limited to government securities, AAA/AA rated PSU bonds and money market instruments.
If we check the half yearly portfolios from 2017 till June 2020, the fund has never invested outside of top rated PSU Bonds, Govt Securities, T-Bills and money market instruments.
This is the single biggest positive about the fund – Avoids credit risk altogether.
So, how does this pan out for the fund?
Well, check out the performance statistics and compare with its peers.
Why is the fund's NAV have ups and downs, when it doesn't take credit risk?
While the fund doesn’t take any credit risks, it has a mandate to alter its portfolio structure based on its assessment of the interest rate environment.
If it expects interest rates to go down, it will hold on to long term govt bonds and try to capture capital gains. If it expects interest rates to rise, it will hold on to short tenure govt bonds or Treasury Bills and wait for interest rates to rise to be able to lock in high yields.
The dynamic nature makes the fund interest rate sensitive. There are times, when movements in the interest rates will have an impact on the fund and its NAV will suffer. That’s just the way the fund accounting works.
Most dynamic bond funds as well as long term bonds will have a volatile movement, primarily because of the interest rate sensitivity of the portfolio.
If you are looking for a zero credit risk investment with better tax efficiency and have a holding period of 3 to 5 years, Quantum Dynamic Bond Fund can find a place in your portfolio. You have to be ready to accept a little volatility though.
One typical use case would be parking of long term emergency funds. The first 6 to 12 months of your emergency portfolio needs to be in lower duration investments. Beyond that, you can consider using this fund.
Another use is to make this a part of your long term fixed income asset allocation.