Kotak launches fixed maturity corporate debt plan

Kotak Mahindra has launched a Fixed Maturity plan to help foreign investors access the Indian corporate debt market.

This follows a recent formal bidding process held by the Securities Exchange Board of India - the Indian market regulator - where Kotak secured a bid for US$730m in corporate debt.

The Fixed Maturity plan will be Kotak's second debt product along with its Indian Income fund announced earlier this month. Both funds will be open to institutional investors, private banks and family offices in the UK, Europe, Middle East and the Far East.

The Kotak India Income fund will aim to generate returns through a strategic allocation to domestic Income funds with exposure to Indian government securities and corporate bonds. The fund will aim to invest in a basket of funds considering their average maturity and portfolio composition and is denominated in US dollars.

The Kotak Fixed Maturity plan feeder fund is a closed-ended debt fund which will aim to generate returns through investments in debt and money market instruments. The fund is denominated in US dollars.

Shyam Kumar, director and chief executive officer of Kotak Mahindra (UK) Limited, and investment manager for the fund, said We are very optimistic about opportunities within the Indian fixed income market. Our debt fund portfolio provides investors with the option to invest in this growing asset class. These funds also have a variant where the fund hedges currency risk thereby allowing investors to limit the risk of currency movements.

The Kotak India Income fund has an initial offer period up to 28 April. There is a management fee 0.5 per cent of the net asset value, and a placement fee of up to 2 per cent of the subscription amount. The minimum investment in the fund is $100,000.

The Kotak Fixed Maturity plan feeder fund has a maturity of approximately 12 months and an initial sales charge of up to 5 per cent. There is a management fee of 0.5 per cent a year and a minimum investment of $100,000.
Mr. Kumar added Debt and gilt funds recorded the highest growth, both in terms of performance and assets under management last year. Fixed income funds in India have already attracted huge inflows with debt funds alone attracting more than $3bn in February this year.

Our successful bid for the corporate debt allocation, and current scenario of softening interest rates, present the perfect opportunity to add these debt products to our portfolio.

Nick McBreen, of Truro-based IFA Worldwide Financial Planning Limited, said The India Income fund is very much the converse of the coin of what is happening in the UK and Europe, in terms of, would someone be now looking towards domestic income funds from the economy in order to be generating returns going forward, the answer is probably no.

But you have the flipside in India, where you have this economy theoretically still driving ahead notwithstanding all the problems that they have. If you look at the price/earnings ratio of the Indian market now, which is coming down, I think is still very expensive, but it is growing and experiencing healthy growth and a lot going on.

So is an investor going to be generating returns from Indian government securities and corporate bonds in India? Possibly yes because they are in a different part of the cycle to us.

Therefore I can see potential where it would be attractive where an institutional fund or a pension fund is desperately trying to generate income because of the shortfall of income elsewhere in the world in global markets. I can see there would be a place for that.

The Fixed Maturity plan is a 12-month plan with heavy initial charges of 5 per cent plus the management charges, so I think this is a very specialist debt fund and a very sophisticated call.

The initial fee is pretty heavy duty quite honestly on a short term plan like that, which is going to have to perform off its socks to make it a really worthwhile play for an institutional fund manager.