The Aditya Birla Sun Life Dynamic Bond Fund is a leading open-ended debt fund managed by Aditya Birla Sun Life Mutual Fund AMC. The scheme invests in a variety of debt as well as money market instruments in order to maximise the potentials gains of the investors, while minimizing overall investment risk. Aditya Birla SL Mutual Fund AMC, a leading asset management company in India, manages various mutual fund schemes across the gamut of equity, debt and hybrid funds. The AMC is a joint venture between the Indian multinational Aditya Birla Group, a diversified company based out of India that is currently operating across various sectors including financial services, and Sun Life Financial Services, a globally recognized provider of financial and insurance services based out of Canada.
About Dynamic Bond Funds
Dynamic Bonds Funds are a unique class of debt funds which invest in debt securities of various maturities. The fund manages its investments in a dynamic manner and the composition of the portfolio is liable to change according to the future interest rate view of the markets as well as the perspective of the fund management regarding the future interest rate direction. A key feature that makes this type of debt fund unique is the fact that the fund management can invest in a range of debt as well as money market instruments without any restrictions with respect to instrument type, maturity profile or duration. This gives the fund greater flexibility in order to maximise investor profits in terms of both capital appreciation and interest income.
Aditya Birla Sun Life Dynamic Bond Fund Investment Objective
This leading open-ended debt fund features the stated objective of providing optimal returns to the fund’s investors while simultaneously ensuring high levels of overall liquidity for the scheme. To achieve these objectives, the fund invests in an actively managed portfolio of money market and debt instruments of high quality. Historically, the fund has invested a large proportion of assets in low risk government securities and high quality corporate bonds, while a much smaller portion of its assets have been invested in relatively lower quality corporate bonds which offer higher yields.
Risk Level of the Birla Sun Life Dynamic Bond Fund
The Aditya Birla SL Dynamic Bond Fund invests a major portion of its assets in a variety of high quality corporate bonds and government securities. A much smaller portion of the fund’s assets are invested in relatively low quality bonds due to their high coupon rate. Furthermore the scheme maintains a balance between long maturity and short maturity investments in order to balance liquidity and consistency of overall returns. As a result, this debt fund has been classified as a relatively low risk investment. However, the relatively lower risk does translate into potentially lower overall returns for the investor as well though the fund has historically outperformed its peers significantly.
Tax Considerations of the Aditya Birla Sun Life Dynamic Bond Fund
The Aditya Birla Sun Life Dynamic Bond Fund is a debt fund hence, the non-equity investments’ capital gains rules will apply to this investment. In case units of the scheme have been held for 3 years or more from the date of allotment, long term capital gains taxation rules will apply to the fund. In case the fund’s units have been held for less than 3 years from the date on which the scheme units were allotted, the rules of short term capital gains with respect to non-equity investments will apply. For debt funds, short term capital gains are chargeable as per the income tax slab rate of the investor engaged is redeeming/switching the units. In case of redemption/switching of debt fund units under applicable long term capital gains, the applicable tax rate is 20% if indexation benefits have been availed or 10% in case no indexation benefits have been availed. Dividends received by the investor in lieu of units of Aditya Birla Sun Life Dynamic Bond Fund Dividend option are completely tax free in the hands of the investor. However, these dividend payouts will feature a dividend distribution tax of around 30% which is paid by the AMC to the relevant government agency directly before it reached the investor.
Birla Sun Life Dynamic Bond Fund Risk Mitigation Strategy
The key risks associated with debt fund investments are – credit risk, inflation risk and interest rate risk. The following are some of the key mitigation strategies that Aditya Birla Sun Life Dynamic Bond Fund scheme utilizes to mitigate these key risks.
Credit Risk Mitigation: The key to credit risk is the fact that this debt fund invests in bonds such as corporate bonds, which companies use to raise money from bond markets. A potential problem occurs due to the fact that the issuer of the bond may no longer be able to service its debt obligations at a later date due to factors such as business losses. In such cases, the value of the bond starts to decline and in the worst case scenario, the value of the bond may be completely written off as a loss by the scheme. In order to mitigate such risk, Birla Sun Life Dynamic Bond Fund invests a major portion of its capital in high quality debt instruments rated AA and above as well as Government Securities that feature the lowest risk of default. This mitigates the overall credit risk for the scheme.
Inflation Risk Mitigations: Inflation is an essential indicator of economic progress in the current condition where deficit financing is the prevalent procedure for governments funding budgetary expenditures. As inflation rises, bonds, which deliver a fixed rate of return termed as coupon rate start to be perceived as less profitable investments due to an inflation-fueled decrease in the value of money. Thus bonds with higher yield rates will tend to be considered more valuable in the face of rising inflation. As a result, this debt fund invests a small portion of its assets in high yield bonds with relatively lower ratings such as AA- so as to generate high returns that at least partially mitigate the risk arising from rising inflation.
Interest Rate Risk Mitigation: Debt funds earn a part of their income from bond yields, while additional income is generated from trading of the bonds held by the fund on the bond market. When interest rates rise, the price of bonds in the bond market falls and they start trading at lower rates. This decrease in value adversely impacts the capital appreciation offered by the fund. In order to mitigate such risk, debt funds such as Birla Sun Life Dynamic Bond Fund invests in both long maturity as well as short maturity debt instruments. Bonds with shorter maturity are usually not traded in the bond market, which protects the fund from interest rate risk to a certain extent. On the other hand, longer term maturity instruments such as government securities help ensure that the fund can make gains through trading in the long term.
Birla Sun Life Dynamic Bond Fund Key Features and Statistics
Inception: The ABSL Dynamic Bond fund first started accepting investments from individual investors on the 27th of September 2004.
Entry and Exit Load: As per a SEBI directive, mutual funds in India including debt funds such as Birla SL Dynamic Bond Fund are not allowed to levy an entry load on new investments made into the scheme. The fund features a 0.5% exit load on the total amount redeemed in case the investor makes such redemption within 90 days counted from the date of unit allocation. However, this exit load is waived if the number of units redeemed during the period is less than 15% of the total amount invested in the fund.
Minimum Investment Amounts: The Aditya Birla Sun Life Dynamic Bond Fund features key minimum purchase criteria that new as well as existing investors need to adhere to. For new investors the minimum purchase amount for a lump sum purchase is fixed at Rs. 1000 and the same minimum purchase amount of Rs. 1000 is applicable to existing investors making additional purchase of scheme units. Similarly in case an investor decides to opt for a SWP (systematic withdrawal plan) with respect to existing investments in the scheme, the minimum single withdrawal amount under this plan is currently fixed at Rs. 1000.
Applicable NAV Rules: The cut off time for new or additional purchases made by an investor of the BSL Dynamic Bond Fund direct plan is 3 pm, however securities market intermediaries may have a separate earlier time for the same. If purchase orders of up to Rs. 2 lakhs are placed by the investor before the scheduled cut off time, they are liable to receive the NAV as per market closure on the same day. For purchase orders received beyond the cut-off time, the next day’s NAV will be applicable to the units purchased.
Fund Manager: The Aditya Birla Sun Life Dynamic Bond Fund is jointly managed by Mr. Maneesh Dangi and Mr. Pranay Sinha. Before being part of Aditya BSL Mutual Fund AMC, Mr. Maneesh Dangi was working with a Pioneer Investcorp. He has an MBA degree along with a FRM certification. Mr. Pranay Sinha is an industry veteran and has worked with industry leaders such as ICICI Prudential Asset Management Company, Morgan Stanley Investment Management, BNP Paribas Bank before joining BSL Mutual Fund AMC. He has done B.Tech in Aerospace Engineering from IIT Kharagpur and a PGDM from IIM Calcutta.
Plans and Options for Birla Sun Life Dynamic Bond Fund
Direct Plan: The direct plan of Aditya Birla SL Dynamic Bond Fund is available for investment only through the fund house website and its representative office. As a result of the fewer purchase routes on offer, direct plan investments into the scheme are relatively fewer. The key difference of the direct plan from the regular plan is the lower expense ratio, which can potentially lead to higher future returns for the investor. Additionally, the direct plan of ABSL Dynamic Bond Fund features a slightly higher NAV as compared to the regular plan of the same scheme.
Regular Plan: The regular plan of ABSL Dynamic Bond Fund is easy to avail as one can make this investment through multiple routes including through the fund house representative office as well as various 3rd party securities intermediaries including Paisbazaar.com. The regular plan features a higher expense ratio as compared to the direct plan hence provides marginally lower returns. However, this variant of the Aditya Birla SL Dynamic Bond Fund also features a lower NAV as compared to the direct plan, hence is marginally cheaper to purchase too.
Growth Option: The growth option of Birla SL Dynamic Bond Fund is available under both the direct plan and the regular plan of the scheme. In case one chooses to invest in the growth option of this debt scheme, there is no chance of receiving a payout while the investor stays invested in the fund. However, any profits made by the scheme are invested back into the fund which ensures that the AUM of the fund increases leading to an increase of individual unit NAV of the fund. This increase in value is the cornerstone of capital appreciation that the investor is liable to receive when he/she redeems or switches the ADSL Dynamic Bond Fund units at a later date.
Dividend Option: The dividend option of the scheme is available to both investors of the regular and direct plans of Aditya Birla Sun Life Dynamic Bond Fund. It is ideally suited for individuals seeking income while staying invested with the fund. In case the scheme makes a profit and has a distributable surplus, the fund management can decide to pay out dividends to the investor. However such payments are not guaranteed and linked to fund performance. When selecting the dividend option, an investor may choose either the dividend payout option or the dividend reinvest option of the fund.
Top Equity Holdings of Aditya Birla Sun Life Dynamic Bond Fund
The following are some top debt and money market investments made by Aditya Birla Sun Life Dynamic Bond Fund.*
|Instrument Type/Credit Rating||Organisations|
|SOV Securities||Government of India and State Government Securities of varying maturities.|
|Securitised Debt||Sansar Trust, etc.|
|CRISIL AAA||Rural Electrification Corporation Limited, Power Finance Corporation Limited, Power Grid Corporation of India Limited, LIC Housing Finance Limited, National Bank for Agriculture and Rural Development, etc.|
|ICRA AAA||ONGC Petro Additions Limited, etc.|
|CARE AAA||Indiabulls Housing Finance Limited, etc.|
|CRISIL AA+/AA||Tata Motors Finance Limited, Shriram Transport Finance Company Limited, Jharkhand Road Projects Implementation Company Limited, Tata Motors Finance Solutions Limited, etc.|
|ICRA AA||Piramal Finance Private Limited, Edelweiss Commodities Services Limited, Edelweiss Finance & Investments Limited, JM Financial Credit Solution Limited, ECL Finance Limited, Bahadur Chand Investments Pvt. Limited, etc.|
|CARE AA+/AA/AA-||Indiabulls Properties Private Limited, Hinduja Leyland Finance Limited, Idea Cellular Limited, Jharkhand Road Projects Implementation Company Limited, Syndicate Bank, etc.|
|BWR AA-||Adani Power Limited, etc.|
|Mutual Funds||Birla Sun Life Floating Rate Plan, Birla Sun Life Cash Plus, etc.|
*This list is subject to changes based on business requirements of Birla Sun Life Mutual Fund AMC, market conditions and SEBI guidelines may occur periodically.
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