Best Medium to Long Duration Fund 2022: SBI Magnum Income

Mar 27, 2022

SBI Magnum Income Fund has won the Morningstar Fund Award in the Medium to Long Duration category for the fourth year in a row. Dinesh Ahuja, Senior Fund Manager, SBI Mutual Fund, talks about what helped the fund remain a consistent performer.

Long term bonds are likely to see volatility as interest rates rise. How are you factoring in a hike in interest rates in your portfolio?

Currently, the duration of the portfolio is at the minimum mandated for the respective categories. Besides, to protect against the expected rise in interest rates, about 15% - 17% of the assets in each fund is allocated to Floating Rate Bonds which would stand to benefit as the short-term rates move higher.

What has been the impact of the Ukraine-Russia war on the Indian fixed income market?

The impact of the Ukraine-Russia war would be felt on domestic markets predominantly due the rise in global commodity prices which in turn would have an impact on domestic inflation. This complicates the situation for the central bank which has been trying to maintain a balance between growth and inflation. While growth still needs policy support, the current geopolitical event poses downside risk to growth on account of the higher prices and uncertainty. If the event prolongs for a longer period of time, the central bank might have to shift their focus more towards managing inflation which could be in the form of tightening liquidity or increasing policy rates, or both.

SBI Magnum Income Fund has the flexibility to invest in AA-rated bonds. Could you touch upon the key criteria or factors you look at in a company before lending in the current scenario, especially for instruments rated below AAA?

We have a philosophy of evaluating credit with a bottom-up approach and conduct a thorough in-house analysis of individual credit before investing. The analysis is based on the 4 C’s principle of credit evaluation which are: Character and Capacity of the issuer for payment of interest and principal in the future, the Collateral or security being offered, and the Covenants being offered by the issuer. We have a dedicated team of six credit analysts and a research head with more than 50 years of cumulative experience.

How do you plan to sustain the performance of the fund going ahead?

The fund generates returns through both accrual and duration strategies. Focus on issuer selection to invest and getting the broad duration calls right are both equally important. While investing in the non-AAA issuers, the spread over AAA is an important criteria along with a view on the direction of overall credit spreads.

Which debt fund categories one can invest in from a 1–3-year time horizon at the current juncture?

Investors are recommended to invest in Debt Funds including Short Term Funds, with a minimum of a 3-year time horizon. For shorter investment timeframes of one year and below, Liquid Funds and Ultrashort Term Funds are recommended. Timing the markets is practically difficult and not recommended for investors. Investors with a reasonable credit risk appetite and a minimum investment time horizon of three years can look at investing in Income or Medium Duration categories/funds that focus on both accrual and duration.

Winners of Morningstar Fund Awards 2022
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