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Consistent top quartile performer in promising fund categoryVivek Sharma, Nippon India MF, Mumbai

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While some amount of the anticipated rate cuts have been priced into the long end of the curve, Vivek says the intermediate and short end typically react much closer to the actual event – which explains why the yield curve has become flat.

The intermediate duration segment (3-5 yrs) is a sweet spot as it captures healthy accrual and also holds the potential for capital gains from spread compression and drop in yields in products like corporate bond funds.

Nippon India Corporate Bond Fund is a top quartile performer across 6 months, 1 yr and 3 yr timeframes. Vivek says dynamic management of duration has been a key alpha contributor, followed by astute security selection.

Portfolio YTM of 7.7% can translate to accrual of around 7%for fund investors. If we do get 2 rate cuts of 25 bps in the next 9-12 months, the fund with its duration at around 3.5 yrs can potentially deliver another1.5 – 2% of capital gains (arithmetically speaking).

A unique feature at NIMF is its discipline of fund casing –which sets clear boundaries for each fund. For its corporate bond fund, duration range is between 1.25 yrs – 4 yrs. Vivek says he will look to increase duration from 3.4 to closer to 4 yrs in the coming months, but will not go beyond the fund casing guidelines irrespective of how attractive the opportunity may appear. This he says truly sets NIMF apart from others.

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