Axis MF launches Rs 1,000-crore floater fund

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Mumbai: Expecting the low-interest rate regime to end sooner than later given the spike in inflation and the ebbing tide of the coronavirus infections, Axis Mutual Fund on Friday launched its maiden floater fund, targeted at short-term investors who are looking to secure returns from interest rate-driven volatilities. The fund house expects to mop up Rs 1,000 crore from the Axis floater fund.

Axis Mutual Fund is among the fastest-growing fund houses managing Rs 2.18 lakh crore corpus as of June-end, up from Rs 1.92 lakh crore in March 2021; and around 88 lakh investors, up from 64 lakh a year ago.

The floater fund will invest almost 75% of the fund in AA-rated and above corporate bonds and the rest in central government securities, Axis Mutual Fund Head (Fixed Income) R Sivakumar told PTI.

According to him, the industry-wide floater fund has an assets under management (AUM) of a little over Rs 80,000 crore, being managed by around 10 funds.

A floater fund essentially allows an investor to hedge or protect one’s investment and returns from falling yields from fixed rate bonds when interest rate rises. It also helps one to protect the portfolio by switching to synthetic debt instruments that can be converted to floating rate bonds wherein yields will move up along with the rising interest rates.

On the timing of the fund, which will be actively managed by Aditya Pagaria, a fixed income fund manager at the fund house, Sivakumar said the RBI has already begun to withdraw from the low interest regime by initiating many liquidity absorbing measures.

That it keeps the rate low means only that the withdrawal or liquidity normalisation has only been delayed due to the second wave, and not the other way around, he said.

Even the language of the past few Monetary Policy Committee (MPC) meetings is clear on this, he added.

The open-ended debt scheme will predominantly invest in floating rate instruments, including fixed rate instruments converted to floating rate exposures using swaps or derivatives, and will target around 80% of the ‘AAA’/’A1+’ bonds along with 20% allocation to ‘AA’ issuers.

It expects the minimum investment horizon to be 12-18 months, and targets a net portfolio average maturity of 6-18 months. The fund opens on Monday for subscription.

One of the benefits of floater funds is superior risk rewards as the fund will offer better risk reward opportunities over other traditional alternatives in the short term space, Sivakumar said.

Another key benefit is helping manage interest rate risks as the fund is actively managed by swapping floating rate instruments and fixed rate bonds, with a view to manage interest rate risks by investing in bonds where the coupon is linked to market movements.