Credit opportunities funds & corporate bond funds adopt accrual strategy and aims to generate better returns by investing in lower rated securities. A credit opportunities fund invests in debt securities across the credit rating spectrum. Find latest return report of Accrual Funds till October 2016 with portfolio Indicators created by FundzBazar teams based on expert analysis.

1. Analysis of Accrual / Credit Opp. Funds
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2. What are Accrual Funds
Accrual fund typically invests in short to medium
maturity papers of medium to low quality.
The objective of the scheme is to earn interest income in
terms of coupon offered by bonds. It adopts buy and hold
strategy and aims to generate better returns compared to
bank FDs by taking credit risk & investing in lower rated
securities for the sake of generating higher yield
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3. Brief Explanation About Accrual Funds
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 There are two types of Accrual Funds, Credit Opportunities fund &
Corporate Bond fund
 Both, Credit opportunities funds & corporate bond funds adopt
accrual strategy and aims to generate better returns by investing in
lower rated securities.
 The strategy is to hold the bonds while taking credit risk for the sake
of generating higher yield. They are not concerned about the interest
rate cycle.
 A credit opportunities fund invests in debt securities across the credit
rating spectrum. Simply put, these funds look for an opportunity for
a possible credit upgrade; like investing in an AA rated scrip that has
the potential to get upgraded to a AAA rating.

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 A corporate bond fund, alternatively, doesn't necessarily invest in
low-rated securities. These schemes invest in a mix of corporate
bonds that are highly rated as well as those that carry a moderate (if
not lower) credit rating.
 Corporate bond funds invest in well managed companies where the
company's fundamentals have improved but the credit rating has
not.
 Credit opportunities funds are high-risk, high-return products,
corporate bond funds are moderate risk, moderate return products
Brief Explanation About Accrual Funds

5.  Money Market Instruments
 Government Securities
 Corporate Bonds
Where Does The Fund Invest
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6. Taxability
 Holding Period
• Short Term Capital Gain will arise if units are sold before 3 years
• Long Term Capital Gain will arise if units are sold after 3 years
 Tax Rate
• Short Term Capital Gain will be taxed as per slab
• Long Term Capital Gain will be taxed at 20% after the benefit of
indexation
 Dividends
• Dividends in the hands of investors are tax free.
• While Dividend distribution tax will get deducted @ 25% in case of
Individual/HUF/NRI and @ 30% in case of corporates
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7. What is Indexation?
Indexation is the process that inflates the purchase price of the asset to
take into account the impact of inflation considering the time of
purchase & sell
Every year government declares Cost Inflation Index (CII) which is used to
measure the rate of inflation in the economy
Let’s look at an example
Bought Debt Fund in the year 2013-14 (CII = 939) for Rs 10 lakh.
Sold Debt Fund in the year 2016-17 (CII = 1125) for Rs 12.95 lakh.
Indexed cost is calculated as – Cost of purchase * CII of the year of sell / CII
of the year of purchase 1000000*1125/939, which comes to 11,98,083.07
Long Term Tax liability will be Rs.96916.93 (Rs.1295000 – Rs.1198083.07)
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8. Accrual Funds Vs Fixed Deposits @
30% tax slab
Particulars Accrual Funds Fixed Deposit
Principal Amount 1,000,000 1,000,000
Expected rate of return 9 7.5
Tenure of investment (in days) 1095 1095
Maturity Value 1,295,029 1,242,297
Interest Income NA 242,297
Assumed Inflation Rate (p.a.) 6 NA
Cost of Indexation 1,191,016 NA
Long Term Capital Gain 295,029 NA
Long Term Capital Gain after Indexation 104,013 NA
Applicable tax rate 20.6 30.9
Tax on Interest Income/ Long Term capital gain 21426.68 74869.73
Net gain 273,602 167,427.14
Maturity Value 1,273,602 1,167,427
Post tax return at maturity 8.40% 5.30%
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9. Accrual Funds Vs Fixed Deposits @
10% tax slab
Particulars Accrual Funds Fixed Deposit
Principal Amount 1,000,000 1,000,000
Expected rate of return 9 7.5
Tenure of investment (in days) 1095 1095
Maturity Value 1,295,029 1,242,297
Interest Income NA 242,297
Assumed Infaltion Rate (p.a.) 6 NA
Cost of Indexation 1,191,016 NA
Long Term Capital Gain 295,029 NA
Long Term Capital Gain after Indexation 104,013 NA
Applicable tax rate 20.6 10.3
Tax on Interest Income/ Long Term capital gain 21426.68 24956.58
Net gain 273,602 217,340.30
Maturity Value 1,273,602 1,217,340
Post tax return at maturity 8.40% 6.78%
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10. Why One Should Invest In This Category
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 Investors can potentially benefit from the prospect of capital
appreciation over the long-term
 Looks at opportunities to mitigate risks associated with volatility in
fixed income markets
 Investments across the credit rating spectrum helps in providing higher
yield compared to plain vanilla diversified debt schemes
 As economy turns around, sentiment improves and companies start to
do well; leads to improvement in credit ratings
 Low Interest rate risk as the strategy is to hold the bonds
 More efficient in terms of tax benefits as investors can take benefit of
indexation on capital appreciation

11. Risk – Return Matrix
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12. Other Features
 Suitability
• Regular Income & capital appreciation over long term
• Generate income by investing in securities across the credit spectrum
• Degree of risk – Moderate & don't want to take interest rate risk
 Ideal Investment Horizon – More than 3 Years
 Exit Load – 1 to 3 Year
 Riskometer
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13. Return Report of Accrual Funds
Report as on 24th October 2016
Simple
Annualized (%)
Compounded Annualized (%) Portfolio Indicators
Scheme Name
Corpus
(In Crs.)
3
Months
6
Months
1 Year 2 Years 3 Years
YTM
(%)
Avg
Mat
(Yrs)
Mod
Dur
(Yrs)
Birla Sun Life Medium Term
Plan
8086.11 12.31 11.42 10.30 10.78 10.95 9.27 2.69 2.00
HDFC Corporate Debt
Opportunities Fund
8811.13 13.89 12.11 10.91 10.72 -- 9.02 3.79 2.88
ICICI Prudential Corporate
Bond Fund
4858.22 12.60 11.43 9.45 9.85 10.31 8.48 3.20 2.41
Kotak Income Opportunities
Fund
2578.95 13.94 12.07 10.78 10.26 10.16 8.99 2.94 2.37
L&T Income Opportunities
Fund
2069.73 12.59 11.52 9.93 10.21 10.35 9.41 2.53 1.99
Reliance RSF – Debt 7661.39 12.45 11.10 10.01 9.81 9.94 9.43 2.25 1.81
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