Kotak Bond Fund - Long Term Gains at Minimal Risk
If you wish to invest in a moderate risk debt mutual fund for a long term, Kotak Bond Fund is the ultimate scheme which can provide reasonable returns at decent risk through fixed income securities. It is a medium to long duration debt scheme that invests in debt tools of a medium to long term maturity. It is a promising scheme with a proven track record and superior management staff. It has provided significant gains in the favourable market conditions and can also be used as a hedge against volatility in the equity market.
What is Kotak Bond Fund?
It is a debt mutual fund that select securities of medium to long term maturity. Kotak Bond Fund was launched in November 1999 by Kotak Mahindra Mutual Fund to take advantage of changing interest rates of fixed income securities with long term maturity. Since 2008, it is managed by Mr Abhishek Bisen who has allowed the investors to gain better returns than the majority of the schemes in the same category. It has delivered better returns than the benchmark and category average most of the time. It has comfortably beaten the peers whenever the interest rates have been cut by the RBI. The two successive rate cuts recently have made it a right time to invest in Kotak Bond Fund.
How Does Medium to Long Duration Fund Work?
Medium to long duration mutual funds possesses a slightly higher risk than those funds which select instruments with short term maturity. The main reason is inflation risk which is also called as purchasing power risk. In long term bonds, the risk of default also subsists as it gets challenging to guarantee whether the issuer will be in a position to pay the promised amount or not. However, the interest rates of such securities are high as they include inflation premium, liquidity premium, and default premium. Investing in a bond with long term maturity is beneficial but can be risky as it is difficult to analyse the quality of the bond and no diversity will be provided. By choosing a top performing medium to long duration mutual fund like Kotak Bond Fund, one does not have to worry about the risk in the long term as it is managed by professional fund managers.
How Did Kotak Bond Fund Perform?
Fixed income securities get the advantage if the interest rates are reduced by RBI. In the past, whenever the interest rates have been reduced, higher gains have been delivered by the scheme. Outstanding gains have been delivered in the year 2008, 2012, 2014, and 2016. Although negative returns have never been witnessed for any year by Kotak Bond Fund. It has maintained best trailing returns in the category for several rolling tenures. The suitable tenure for investment in this scheme is 5-7 years in which annual gains of more than 9% can be expected. The calculation for exact capital gains can be done by using the SIP calculator and lump sum calculator at MySIPonline.
Kotak Bond Fund - Investment Strategy
The fund managers select the securities which are best according to the market conditions and prospect. In recent years, the average maturity of the instruments has ranged between 5 to 7 years but has also been reduced to 3-4 or increased above 8 depending on the market conditions. As long term securities possess higher risk, investments are mostly done in securities of high credit ratings while a smaller proportion is also invested in securities of moderate or low credit ratings. Nearly 50% of the AUM is invested in AAA rated securities. The total number of securities in the portfolio range from 40-50.
Who Should Invest in Kotak Bond Fund?
Kotak Bond Fund is a moderate risk debt fund which is ideal for long term investment. It is most suitable for those investors looking for long term capital appreciation from fixed income securities without taking high risk. It can provide better gains in the long term but can be risky for short term investors. A very low exit load of 0.2% is charged for redemption within 90 days but investments must be done with an objective of 5 years or more.
Kotak Bond Fund is among the top performers in the category of medium to long duration debt fund. It has the facility of SIP, SWP, STP and the investments can be started with an initial amount of Rs 5000. To know more about the details of the scheme, connect with our experts and be a successful investor.