SBI Mutual Fund has filed papers with SEBI for the launch of a corporate bond fund. According to SEBI norms, a corporate bond fund is obligated to invest 80% of its assets in corporate bonds with the highest rating grade (usually AAA). Funds which focus on lower rated bonds (AA and below) are placed in the ‘Credit Risk Fund’ category.
The SBI launch is aimed at filling a gap in its product suite created by the new SEBI classification system. The fund can also invest 0-10% of its assets in real estate investment trusts (REITs) and Infrastructure Investment Trusts (InVITs).
In terms of maturity, a corporate bond fund is free to choose a maturity profile. A longer average maturity makes a fund more sensitive to interest rates and vice versa. According to the SBI filing, the yield on 5-year bonds rated AAA was 8.65-8.7% and the yield on 1-year bonds rated AAA was 8.45-8.5% on 15th June 2018. In the current scenario of rising interest rates, the fund may adopt a cautious approach.
Rajeev Radhakrishnan, who manages various SBI schemes such as SBI Short Term Debt Fund, SBI Ultra-short term Debt Fund, and SBI Magnum Low Duration Fund, will be the fund manager. The latter two funds are rated highly by Value Research (4 stars out of 5) and have performed well, delivering returns of around 8% CAGR over the past five years. The minimum investment in the fund is Rs 1,000.
Fund Manager: Rajeev Radhakrishnan
Minimum Investment: Rs 1000
Options: Growth and Dividend