Friday, November 18, 2016

BNP Paribas Short Term Income Fund



BNP Paribas  Short Term Income Fund, The note highlights how in volatile condition both external and internal we have been able to demonstrate steady performance.

 

Volatile market; Rock steady performance

 

Events that shook the markets:

 

1.      Referendum on Brexit:  On June 23, 2016 UK voted to leave the European Union. Britain also lost its top AAA credit rating, meaning the cost of government borrowing will be higher. The pound touched a 30-year low. 

 

2.      When will the Fed Lady Sing? This has been a question that all market participants have been trying to answer.   Around the policy time there is lot volatility in the markets. Now closer to the date in December 2016 we may witness similar volatility.

 

3.     Deutsche Bank USD 14 bn scare:  The U.S. Justice Department demand that Deutsche bank pay $14 billion to settle the bank's role in the sale of risky mortgages before the financial crisis.

4.      Surgical strikes by India

 

During these volatile external environments, there has been a lot of movement in the 3Y AAA and 1Y AAA papers as show below in the graph. BNP Paribas Short Term Income Fund due to active management and good calls during these times was able to ensure the volatility was very less.

 

 

How did BNP Paribas Short Term Income Fund performed in this volatile time?

 

Outlook for Short Term Income Fund

 

Normal monsoons and good rainfall distribution should lead to lower food inflation going ahead and should open up further room for monetary easing.

 

RBI has indicated that the neutral/real rate of interest is dynamic which is currently around 1.25%, lowering it from an earlier stated 1.50% to 2.00%. This is largely due to globally neutral real rate having come down.

 

Inflation may be lower going forward. With RBI changing its stance on real rates, we expect another 50 bps rate cut over the next 6 months and the sovereign yield curve should steepen going forward. 


This will augur well for BNP Paribas Short Term Income Fund. Investors looking at an investment horizon of 15-180 days should seek exposure in BNP Paribas Short Term Income Fund.



Scheme highlights                                                                         

Yield to Maturity: 7.75%

Average Maturity: 3.06 years

Modified duration: 2.31 years





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