Aries is a Portfolio Management Strategy (PMS) offering investments in the debt capital market The target investment credit space for Aries is the range of fixed income opportunities between AA-rated and BB-rated papers. The objective is to actively manage a portfolio of sovereign and high quality corporate debt to provide above-benchmark fixed income returns to investors.
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Why invest in Mid Yield Debt?
- For over a year, debt fund investors have benefited from the interest rates softening. Unsurprisingly gilt funds and long term income funds have delivered healthy returns.
- However, going forward with lower rate cuts or no rate cuts this rally is unlikely to recur.
- Debt fund investors will have to moderate their return expectations for next year since most returns will come from accrual (coupon payments) and not capital gains. Short term mutual funds have already witnessed a fall in returns.
- Since mutual funds do not invest in papers rated below “A”, the forward looking returns do not seem exciting.
Hence there is significant opportunity to create an actively managed portfolio of diversified debt securities with mid yields issued by corporates with credit rating ranging between “AA” to “BB”.
- Mid Yield Debt includes AA & below securities which currently are attractive in the improving credit situation on account of fat spreads, comfortable interest rate position and liquidity outlook.
- Also sentiments in the bond markets have improved since the formation of a stable and pro reform government at the centre.
- In the scenario of declining inflation trajectory and with further rate cut expected, it is better to capitalise on the high corporate bond yields now.
Why Invest in Aries?
Gives access to Mid Yield Debt
Retail participation in debt market remains limited to Bank FDs, PPF, few Corporate FDs and Debt Mutual Funds, all of which concentrate on lower end of yield spectrum. Aries aims to create a diversified portfolio of debt securities which are currently not as easily accessible to Investors.
Adapts to the Volatility
The portfolio is best suited in volatile markets as it endeavours to capture the best of duration play, interest rate movements & credit spreads.
Creates a Diversified Portfolio
Mid Yield Debt is an Important Addition to an Investor’s Portfolio. It provides diversification to the fixed income portfolio with a boost in returns. The portfolio will be diversified across securities with ratings ranging from credit rating of AA to BB, different maturity profiles and amongst various borrowers within these domains at a ticket size of only Rs. 25 lakhs.
Higher IRR through Active Management
Higher IRR through Active Management - The strategy will be to source high quality illiquid debt investments in the secondary market and find opportunities for market making which will escalate returns by purchasing the securities at a discount or selling them at a premium before maturity.
Investors can think of this as an allocation of their fixed income portfolio. It will provide better returns than existing options in the fixed income space like bank FD, corporate FD and bonds.
For affluent investors this is an attractive investment avenue because of volatility in equities and commodities market, comparatively low yields in rated bonds and bank deposits, and high real estate prices.