What are Short Term Funds?
Short Term or limited-duration Funds are fixed-interest mutual fund plans that operate so that the plan’s Macaulay Period is between one and three years. The Macaulay period is the cumulative total of the time an investor (you) needs to hold the security following the current value of the bond’s cash flows (interests and principal repayments) to equal the amount of money paid to the bonds. The lengthier a bond’s maturity, the longer its Macaulay Period.
What does the term Direct-Growth imply?
Direct Growth refers to dealing with a plan’s growth gaining offers through one defined and direct contribution plan, whereas Growth refers to dealing with a plan’s growth options through one regular plan. Direct Growth will certainly have a lesser expenditure percentage than normal Growth.
Kotak Short Term Fund Direct-Growth is among the leading investment schemes if you want to achieve good direct Growth while investing in short-term funds.
Kotak Short Term Fund Direct-Growth
The Kotak Bond Short Term Fund Direct-Growth is a Kotak Mahindra Mutual Fund Limited Period equity investment plan. The fund has been in place for over nine years now, having been established on January 1, 2013.
Kotak Bond Short Term Fund Direct-Growth has ₹15,587 crores worth of AUM (assets under management) according to recent research done towards the end of March 2022 and is a medium-sized fund of its category. The fund’s expense ratio is 0.34 percent, which is in sync with the expense ratios charged by most other Short Duration funds. The one-year returns for Kotak Bond Short Term Fund Direct-Growth are 4.32 percent in the past year. It has returned an average of 8.32 percent per year since its inception.
Interest-rate risk and capital adequacy are the two main risks associated with debt investment portfolio management. To define the integrity of a fund’s portfolio, these factors must be considered together: average maturities, tenure, interest rate variations, collateral requirements, credit history, flexibility, etc.
While the fund’s duration influences interest-rate fluctuations, the credit quality of debt instruments is determined by the fund’s cumulative total credit scores. In a simpler and broader sense, investments with increased creditworthiness will invest in securities with a weighted-average credit rating of AA- or higher, funds with medium credit quality will invest in securities with a credit rating of A- to BBB-, and funds with low credit quality will invest in securities with a weighted-average credit rating of less than BBB-. A credit score is an analytical method used to assess a corporation’s credibility, success, and profitability, considering several indicators such as the default rate and the solvency of the corporate entity in question. This fund’s portfolio includes assets with various tenures. Their duration considers the vulnerability of these securities’ average maturity to interest rate movements. Kotak Bond Short Term Fund Direct-Growth plan has an average maturity of 3.16 years and 1.54 years. Interest rate movements are generally more sensitive to securities having a long term. Thus, if you are a risk averse investor, you can consider investing in a fund that has a shorter maturity period compared to other category norms.
The Kotak Bond Short Term Fund Direct-Growth plan’s ability to deliver consistent returns is comparable to most products in its category. In a falling market, it has an average capacity to control losses. The fund’s credit rating is excellent, suggesting that it has lent its corpus money to only high-quality borrowers. The risk of default is similar across the board because most funds in this category lend to similar borrowers. The fund managers consider the ITC share price, Axis Bank Ltd, Gujarat State, Indian Bank, Kotak Mahindra Prime Ltd, GOI, etc. before including them in the portfolio.
According to SEBI’s (Securities and Exchange Board of India) most recent risk grading rules, the Kotak Bond – Short Term Fund – Direct Plan falls into the Low-to-Moderate risk level group of schemes. According to the April 2022 report, the Kotak Bond Short Term Fund Direct Plan’s current NAV for the Growth option stands at Rs 45.6204.
The Bottom Line
Short Term Funds’ primary investment purpose is to develop earnings by accumulating bond rates over the maturity time frame of the components in the plan’s portfolio. The goal of these funds is to keep assets until they mature. Price fluctuations do not influence the final yields if securities are kept until maturation.
Investing in Kotak Bond Short Term Fund Direct Plan is recommended for at least three years. The advised time frame is the minimum duration required to hold investments in the fund to lower the fund’s potential losses and assure better, consistent returns.