This debt fund has given 62% returns in one year

A short duration debt mutual funds offering 62% in one year? How is it possible? It should be a mistake, right? Not really. It is true that PGIM India Short Maturity Fund is offering a whopping 62% returns in the one-year period. Its peers in the short duration fund category have barely managed to touch double digit returns. The second scheme in the category is offering 11.91% returns in one year. ETMutualFunds.com tried to find out the reason behind such extraordinary returns?The scheme: PGIM India Short Maturity Fund was earlier called DHFL Pramerica Short Maturity Fund. Prudential Global Investment Managers (PGIM) took over the fund house in 2019 and the scheme was renamed PGIM India Short Maturity Fund. The scheme is managed by Puneet Pal and Kumaresh Ramakrishnan.The fund’s portfolio has 66.20% assets allocated to AAA bonds and 19.28% in cash. Here’s a look at the performance of the scheme over the years compared to the short duration fund category:PGIM India Short Maturity Fund (returns in %)Short Duration Fund Category(Average returns in %)1-year63.6911.353-year4.766.745-year6.827.697-year7.898.37 Source: Value ResearchHere are the top 10 holdings of the scheme:InstrumentCredit Rating% Assets5.77% GOI 2030SOV14.526.98% Power Finance Corp. 20/04/2023AAA9.268.58% HDFC 18/03/2022AAA9.108.93% Power Grid Corporation 20/10/2020AAA9.015.05% Indian Oil Corp. 25/11/2022AAA7.497.34% HUDCO 16/09/2022AAA6.266.19% IRFC 28/04/2023AAA6.136.60% REC 21/03/2022AAA6.117.29% SIDBI 2022AAA4.696.70% National Bank Agr. Rur. Devp 2022AAA3.42Source: Value ResearchSR Srinivasan, Founder, SriNivesh Advisors, an investment advisory firm based in Bengaluru, on the mystery behind the stupendous performance:The portfolio of the fund as of end April, 2019 was mostly in just DHFL and related companies. This was partly because of the redemption pressures. The scheme had stopped accepting fresh investments in June 2019. It sold off most good securities and pretty much had unlisted securities of ADAG group as of July 2019. Basically, the fund had hit rock bottom NAV in July/Aug 2019. Post that when PGIM took over, it cleaned up and added better securities. So, the 1-year return is eye popping because it almost started from zero NAV.In the last many months, the fund has put in steps and has 'come back from the brink'. It still has only a dozen or so instruments and is highly concentrated. The current papers are mostly of AAA and SOV rating and the credit risk is much lower for this fund now. Its current YTM is 4.71 and you can expect a return of 5 to 5.5% from the fund in the next 12 months.The fund has eye popping 1-year returns. However, these returns are from a very risky past of the fund and are not sustainable.Kumaresh Ramakrishnan, Head-fixed income and fund manager of PGIM India Short Maturity Fund, on the performance and investment strategy:The scheme has an exposure to a mix of corporate bonds and G-secs such that the duration is managed between 1-3 years. The outperformance has come from both corporate bonds and G-secs. Last year, the scheme faced some decline in AUM, given market conditions. The fund had holdings of non-AAA corporate bonds which faced volatility in yields given the headwinds in the credit space. However, as these bonds got repaid on maturity, it started reflecting in the fund performance.From a positioning point of view, the fund is now managed as a high quality fund with exposure to high grade holdings in AAA and AA+.The size of the fund has also helped in actively managing this reflecting in superior performance. However, the fund doesn’t resort to using credit to generate alpha.

from Economic Times https://ift.tt/2FLIz5p