Axis Income Fund maintains a diversified portfolio across government securities and corporate debt such that the portfolio duration is between 4 to 7 years. The higher duration of the portfolio means that the fund tends to benefit much more during times when interest rates go down due to the gains in the bond prices at such times. Conversely the fund performance can get affected when interest rates are going up which lead to a fall in bond prices.
Debt funds come in different risk profiles which can be judged by the maturity of bonds in their portfolios. Therefore make sure that you evaluate the duration profile of the debt fund before investing. Short term funds
work for lower risk shorter horizon allocations, whereas dynamic bond fund
works for investors that are looking at longer term allocation (beyond 1 year) and want to capture the opportunities across the entire bond market.Income funds are best suited when interest rates are falling.
Allocation between corporate bonds and government securities
Corporate bonds tend to trade at a yield which is higher than government securities because of the higher risk. This spread is not uniform and changes from time to time in the market based on technical factors (such as demand and supply) and fundamental factors (such as economic performance and risks of downgrade). The allocation between corporate bonds and government securities in Axis Income fund is done based on the fund manager’s view on the spread.
- For example in case the spread is deemed to be too low, the fund manager will prefer to run a higher allocation to government securities. Apart from the spread other factors such as diversification, risk management and liquidity will also drive the allocation between government securities and corporate bonds.
Key Features of Income Fund
- An open-ended diversified debt fund with no exposure to equities
- A medium risk fund suitable for an investment horizon of 1-3 years
- Maintains portfolio duration between 4-7 years