Bandhan Bond Fund - Short Term Plan Regular Plan Periodic Reinvestment of Inc Dis cum Cptl Wdrl Opt INF194KA1SP8

Hence, taking credit bets is not a part of the investment approach.

Given the fast-changing market dynamics, adjustments have been made to the fund's strategy over time to provide more flexibility to the manager. For instance, the strategy was modified to accommodate government bonds, which were completely avoided earlier. Consequently, the manager now has more flexibility with respect to duration management and utilizes the entire available range of one to three years, compared with a narrow band of 1.5 years to 2.0 years earlier. This gives Suyash Choudhary more freedom in running this strategy. That said, it is worth noting that the greater flexibility has also increased volatility in the portfolio to some extent. However, we believe Choudhary has the experience to effectively manage the same.

For investments in corporate bonds, the team lays a lot of emphasis on the promoter group, its track record, and corporate governance standards. Choudhary will not lend to a company facing corporate governance issues. Additionally, he also looks at a company's competitive standing in relation to peers, its practices, cash flows, liquidity profile, and business and financial risks, among others. While investing, the investment team takes a relatively long-term view and does not pay much heed to news flows.

Suyash Choudhary plays it safe here and adopts a cautious approach, prioritizing safety and liquidity by favoring high-credit-quality instruments. This approach mitigates unwarranted risks, with credit bets being excluded from the portfolio.

Choudhary largely aims at generating accrual income by investing in a mix of high-quality corporate bonds and money market instruments. However, the inclusion of government securities into the portfolio has provided extra flavor to the strategy and an additional source of alpha generation for the fund. Duration calls are now therefore taken with the help of government securities but ensuring that the Macaulay duration of the fund stays within the defined range of one to three years.

Amid the current scenario, the manager has notably increased the corporate bond allocation to 62% in February 2024 from 21% in August 2023. Subsequently, the government-bond exposure in the portfolio has come down to 34% from 73% over the same period. This shift could be attributed to the widening of the spread at the shorter end of the yield curve and improved liquidity, alongside strengthening corporate balance sheets.

Choudhary has also increased the fund’s duration in the last few months, given his belief that India is amid a macroeconomic rerating. In addition to that, factors such as a stable current account deficit environment, comfortable inflation dynamics, the government’s push toward fiscal consolidation, inclusion of Indian government bonds in the J.P. Morgan Index—thereby enhancing its demand globally—and the expectation of a moderate rate cut this year pushed the thesis in favor of increasing the fund's duration. The modified duration therefore has been increased to 2.58 years in February 2024 from 2.02 years in December 2022.