Kotak Credit Risk Fund Direct Annual Payout of Inc Dis cum Cap Wdrl INF174K01MG5

Kotak Credit Risk prioritizes high-quality, high-yield bonds. The fund is backed by a seasoned team and rigorous investment process, resulting in an Above Average rating for People and Process. Nevertheless, investors should note that significant recent redemptions have reduced portfolio liquidity, warranting careful monitoring.

The credit risk category has seen significant outflows in recent years, with Kotak Credit experiencing relatively high outflows in the past year too. This has led to a notable concentration risk and declining portfolio liquidity.

The fund follows a research-intensive investment process, with a primary focus on safety and liquidity. Initially, it maintained a diversified portfolio with 50-55 issuers in 2018. However, following the 2020 liquidity crisis, its exposure to top individual holdings has increased but is still within the SEBI-defined limits.

While selecting credits, the manager typically looks at attractive yields and quality credits. Extensive qualitative and quantitative analysis is conducted to evaluate potential investments that demonstrate competitive, financial, and strategic advantages to realize their potential. The manager avoids duration bets, as they are less relevant because of their short-term billing. He typically maintains a portfolio duration between 1.5 and 2.5 years.

Surveillance has shot up since 2019 after the spate of downgrades in the market, for instance, the NBFC and housing finance sector, previously evaluated on a quarterly basis, is now tracked monthly. Diversification by credit tier, industry, and issuer is key in building the portfolio.

Deepak Agrawal with an overall experience of about 20 years has been managing this fund since May 2010, demonstrating expertise in credit strategies. The recent leadership change in November 2022 saw Lakshmi Iyer—chief investment officer of fixed income—transition to the role of CEO of the investment advisory business at Kotak Investment Advisors. Agrawal took the position of CIO of fixed income, while Abhishek Bisen was elevated to head of fixed income.

Given this change, Agrawal’s responsibilities have gone up; however, the fund house proactively restructured the team. Sunit Garg, the head of research, was appointed as co-portfolio manager for this fund. The fund house also expanded its team by hiring two analysts and one dealer, while Manu Sharma was promoted to co-portfolio manager for other strategies.

Despite losing a key decision-maker with Iyer's departure, we have confidence in the two veteran portfolio managers, Agrawal and Bisen, who have been at the helm for a very long time. They are reasonably seasoned to handle the increased workload. Moreover, the fundamental view on the strategy in the way it is managed reflects a team-based approach.