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Credit Opportunity Funds - FundzBazar

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Credit opportunities funds & corporate bond funds adopt accrual strategy and aims to generate better returns by investing in lower rated securities. A credit opportunities fund invests in debt securities across the credit rating spectrum.\nFind latest return report of Accrual Funds till October 2016 with portfolio Indicators created by FundzBazar teams based on expert analysis. \n

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Presentation Transcript
slide2

What are Accrual Funds

Accrual fund typically invests in short to medium maturity papers of medium to low quality.

The objective of the scheme is to earn interest income in terms of coupon offered by bonds. It adopts buy and hold strategy and aims to generate better returns compared to bank FDs by taking credit risk & investing in lower rated securities for the sake of generating higher yield

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slide3

Brief Explanation About Accrual Funds

  • There are two types of Accrual Funds, Credit Opportunities fund &

Corporate Bond fund

  • Both, Credit opportunities funds & corporate bond funds adopt

accrual strategy and aims to generate better returns by investing in

lower rated securities.

  • The strategy is to hold the bonds while taking credit risk for the sake

of generating higher yield. They are not concerned about the interest

rate cycle.

  • A credit opportunities fund invests in debt securities across the credit

rating spectrum. Simply put, these funds look for an opportunity for

a possible credit upgrade; like investing in an AA rated scrip that has

the potential to get upgraded to a AAA rating.

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slide4

Brief Explanation About Accrual Funds

  • A corporate bond fund, alternatively, doesn\'t necessarily invest in

low-rated securities. These schemes invest in a mix of corporate

bonds that are highly rated as well as those that carry a moderate (if

not lower) credit rating.

  • Corporate bond funds invest in well managed companies where the

company\'s fundamentals have improved but the credit rating has

not.

  • Credit opportunities funds are high-risk, high-return products,

corporate bond funds are moderate risk, moderate return products

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slide5

Where Does The Fund Invest

  • Money Market Instruments
  • Government Securities
  • Corporate Bonds

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slide6

Taxability

  • Holding Period
  • Short Term Capital Gain will arise if units are sold before 3 years
  • Long Term Capital Gain will arise if units are sold after 3 years
  • Tax Rate
  • Short Term Capital Gain will be taxed as per slab
  • Long Term Capital Gain will be taxed at 20% after the benefit of
  • indexation
  • Dividends
  • Dividends in the hands of investors are tax free.
  • While Dividend distribution tax will get deducted @ 25% in case of
  • Individual/HUF/NRI and @ 30% in case of corporates

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slide7

What is Indexation?

Indexation is the process that inflates the purchase price of the asset to take into account the impact of inflation considering the time of purchase & sell

Every year government declares Cost Inflation Index (CII) which is used to measure the rate of inflation in the economy

Let’s look at an example

Bought Debt Fund in the year 2013-14 (CII = 939) for Rs 10 lakh.

Sold Debt Fund in the year 2016-17 (CII = 1125) for Rs 12.95 lakh.

Indexed cost is calculated as – Cost of purchase * CII of the year of sell / CII of the year of purchase 1000000*1125/939, which comes to 11,98,083.07

Long Term Tax liability will be Rs.96916.93 (Rs.1295000 – Rs.1198083.07)

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slide10

Why One Should Invest In This Category

  • Investors can potentially benefit from the prospect of capital

appreciation over the long-term

  • Looks at opportunities to mitigate risks associated with volatility in

fixed income markets

  • Investments across the credit rating spectrum helps in providing higher

yield compared to plain vanilla diversified debt schemes

  • As economy turns around, sentiment improves and companies start to

do well; leads to improvement in credit ratings

  • Low Interest rate risk as the strategy is to hold the bonds
  • More efficient in terms of tax benefits as investors can take benefit of

indexation on capital appreciation

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slide11

Risk – Return Matrix

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slide12

Other Features

  • Suitability
  • Regular Income & capital appreciation over long term
  • Generate income by investing in securities across the credit spectrum
  • Degree of risk – Moderate & don\'t want to take interest rate risk
  • Ideal Investment Horizon – More than 3 Years
  • Exit Load – 1 to 3 Year
  • Riskometer

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