Fund houses may soon be moving to fill gaps in SEBI categories in which they do not presently have any offerings. One such apparent attempt is the launch of the Union Corporate Bond Fund by Union Mutual Fund, a fund house sponsored by Union Bank of India. This fund opened for subscription on 4th May and will close its offer period on 18th May. This is an open-ended scheme and you can invest at any point in time after the fund is launched in the market.
A Corporate Bond Fund according to SEBI is a fund which invests 80% of its assets in corporate bonds rated AA+ and above. Despite the word ‘corporate’, the Scheme Information Document (SID) lists securities created and issued by the Central Government and State Government and treasury bills as part of the list of permitted investments. In other words, ‘corporate bond’ also includes government securities.
This list of permitted investments includes corporate bonds, money market instruments, certificates of deposit, collateralised borrowing and lending (CBLO), commercial paper, reverse repos, floating rate instruments, securitised assets and debt or money market mutual fund schemes. The fund is also permitted to invest in derivatives such as interest rate swaps.
The scheme will be managed by Parijat Agarwal, who also manages Union Dynamic Bond Fund, which has done a CAGR of 5.85% as against the category average of 5.99%. Agarwal is a co-manager of Union Balanced Advantage Fund and Union Asset Allocation Fund. The former was launched in December 2017 (and has relatively little indicative value) and the latter has underperformed the VR Balanced Category in the last five years and three years.
The RupeeIQ Take
Investing in mutual funds with no track record brings in an added element of uncertainty. On the other hand, a corporate bond fund is a wholly new animal, created by SEBI in its mutual fund classification system of October 2017. In the strictest sense of the term, you will not find any such funds with a track record. In such a situation, one can look at the track record of similar funds managed by the fund house or fund manager. In this case, however, as highlighted above, the data is not very encouraging.
NFO Period: 4th May to 18th May 2018
Minimum Subscription Amount: Rs 5000 (For monthly SIP, Rs 2000)
Term: Open Ended
Benchmark: CRISIL Short Term Bond Fund Index
Investment Options: Growth, Dividend Payout and Dividend Sweep.
Fund Manager: Parijat Agarwal