Can I invest in Kotak Bond Short Term Fund to generate income?

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Is Kotak Bond Short Term Fund (Direct, growth) a safe fund to invest for building emergency corpus as well as to generate regular income?
--Aditya Bhide

Rushabh Desai, an AMFI-registered mutual fund distributor based in Mumbai, responds:

Kotak Bond Short Term fund is a short duration debt scheme. The short duration category is meant for investors with an investment horizon of one to three years. The scheme is managed by an experienced manager and management.
  • 9.8%Annualized Return for 1 year
  • >3 years Suggested Investment Horizon
  • 9.0 YearsTime taken to double money
The scheme has been a consistent performer over the years and has been among the top 10 in the category several times. At present, the scheme maintains a high credit quality of 44.6% towards sovereign grade instruments, 51.9% towards AAA & equivalent grade instruments and 3.5% towards cash instruments. This means the risk of incurring a loss is low.

Based on these parameters and by observing the fund’s average maturity which stands at 3.1 years, this fund is well suited to generate regular income, depending on the fluctuation of the fund's YTM (Yield to Maturity) with an ideal time horizon of at least 2 to 3 years.

It is very important to understand that liquidity and preservation should be given the top most priority while building an emergency corpus. The fund should not only invest in the highest-rated instruments, but also be liquid all the times.

You should park your emergency corpus only in overnight funds and (liquid funds, if you don’t require the money for 1 to 3 months). I would not ask you to rely on Kotak Bond Short Term Fund for fulfilling your emergency financial needs.

I would suggest you to park at least 50% of your emergency corpus in HDFC Overnight Fund and based on the financial urgency of your situation you can either allocate the rest in HDFC Liquid Fund or can maintain full allocation in the overnight fund. Both these funds are highly safe, liquid and are managed by experienced managers and management.
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