A basic presentation on for first time investors in Liquid Fund.
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A basic presentation on for first time investors in Liquid Fund.

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A Liquid Mutual Fund has potential to provide good liquidity, low interest rate risk and the prevailing yield in the market. While liquidity is one factor of these funds, safe investments and ease of ...

A Liquid Mutual Fund has potential to provide good liquidity, low interest rate risk and the prevailing yield in the market. While liquidity is one factor of these funds, safe investments and ease of operations make them ideal cash management option for HNIs and corporate.

Liquid Funds invest in money market securities, commercial papers, short term NCD, FD ,CBLO etc. All the underlying investment are upto 91 days of residual maturity. Maturity restriction makes them relatively less sensitive to interest rate fluctuations, compared to other debt funds.

Liquid funds are fixed income funds ideal for investors with a short-term investment horizon and low risk appetite.

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A basic presentation on for first time investors in Liquid Fund. A basic presentation on for first time investors in Liquid Fund. Presentation Transcript

  • Investing in Fixed Income Funds March 2014 FOR PROFESSIONAL INTERMEDIARIES ONLY
  • Contents 2 Investing in Liquid funds  Overview  Possible Benefits of Investing in Liquid Funds  Asset Class & Risk Profile  Taxation of Fixed Income Funds  Risks Involved An update on Fixed Income Funds of DSP BlackRock Mutual Fund  Fund Positioning & Current Snapshot  Investment Strategy
  • Overview A Liquid Mutual Fund has potential to provide good liquidity, low interest rate risk and the prevailing yield in the market. While liquidity is one factor of these funds, safe investments and ease of operations make them ideal cash management option for HNIs and corporate. Liquid Funds invest in money market securities, commercial papers, short term NCD, FD ,CBLO etc. All the underlying investment are upto 91 days of residual maturity. Maturity restriction makes them relatively less sensitive to interest rate fluctuations, compared to other debt funds. Liquid funds are fixed income funds ideal for investors with a short-term investment horizon and low risk appetite. The key benefits of liquid fund investments are:-  Cash Management  Safety  Liquidity  Returns 3 FOR PROFESSIONAL INTERMEDIARIES ONLY
  • Possible Benefits of Investing in Liquid Funds Diversification Investors’ money is spread across different securities and companies, depending upon the scheme’s investment objective. This diversified exposure helps reduce the risk. Professional Management Portfolios are managed by highly qualified and experienced professionals. Transparency Detailed portfolios are published monthly. Easy liquidity Redemptions from Liquid Funds are on T+1 basis with certain specifications. No Lock-In Period Liquid Funds can be used even for overnight investments. No Loads Liquid Funds do not have any entry or exit loads hence investors are free to withdraw there money at any point of time. 4 FOR PROFESSIONAL INTERMEDIARIES ONLY
  • Asset Class & Risk Profile Asset class Risk Profile Money Market Securities Credit Risk Price Risk Treasury Bills NIL Low Reverse-Repo Low Nil Call Money & CBLO Low Nil CPs and CDs Low Low Corporate Debt Low to medium Low to medium Short Term NCDs Low to medium Low to medium Floating Rate Securities Low to medium Low to medium Securitized debt Low to medium Low to medium 5 FOR PROFESSIONAL INTERMEDIARIES ONLY
  • Risks Involved Liquidity Risk  Liquidity is a measure useful to analyze a fund’s ability to manage redemption pressures.  On an average a large portion of a liquid fund portfolio consists of highly liquid assets, coupled with a comfortable component of cash or cash equivalent securities. Therefore, the liquidity risk of a portfolio is mitigated to a large extent. Interest Rate Risk  This risk is low in liquid fund portfolios mainly due to their exposure to very short term assets.  Lower average maturity of the portfolio also mitigates the interest rate risk since most of the investments are made in short dated money market securities. Credit Risk  Typically liquid funds invest in highest credit rated papers issued by Banks and Corporate.  Therefore, liquid fund portfolios are largely tilted towards the AAA/P1+ rated instruments. 6 FOR PROFESSIONAL INTERMEDIARIES ONLY
  • Dividend Distribution Tax from June 1, 2013 (For Fixed Income Scheme) 7 All Schemes Base Rate Surcharge Edu Cess Total Institutional Investors 30% 10.00% 3% 33.99% Retail Investors 25% 10.00% 3% 28.33% Source : Internal FOR PROFESSIONAL INTERMEDIARIES ONLY
  • Fixed Income Products As on March 2014
  • DSP BlackRock Liquidity Fund is suitable for investors seeking*  Income over a short term investment horizon  Investment in money market and debt securities with maturity not exceeding 91 days  Low Risk (Blue) DSP BlackRock Liquidity Fund An open-ended Liquid Scheme *Investors should consult their financial advisors if in doubt about whether the product is suitable for them. Note: Risk may be represented as: (Blue): Investors understand that their principal will be at low risk (Yellow): Investors understand that their principal will be at medium risk (Brown): Investors understand that their principal will be at high risk
  • DSP BlackRock Liquidity Fund 10 Credit Quality Maturity Distribution (excl. current assets) Duration Movement (days) Asset Allocation Fund Inception 11 Mar 1998 Assets INR 4,468.46 crores Modified Duration 0.05 years Average Maturity 0.05 years Fund Positioning Ideal choice for risk averse investors who wish to invest their short-term cash surplus in a portfolio of money market assets and short-term debt. 48.17% 18.17% 23.19% 10.47% CD FD CP Repo/CBLO and Cash Equivalent 26.52% 24.89% 28.63% 19.92% 0% 10% 20% 30% 40% <= 1 week > 1 week to 15 days > 15 days to 1 month Month 2 %ofPortfolio 26 66 29 18 37 11 12 51 31 20 38 20 17 0 20 40 60 80 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 71.43% 28.57% A1+ & equivalent Cash and Cash Equivalent/FDs FOR PROFESSIONAL INTERMEDIARIES ONLY Data as of 28 February 2014. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments.
  • DSP BlackRock Money Manager Fund is suitable for investors seeking*  Income over a short-term investment horizon  Investment in money market and debt securities  Low Risk (Blue) DSP BlackRock Money Manager Fund An open-ended Income Scheme *Investors should consult their financial advisors if in doubt about whether the product is suitable for them. Note: Risk may be represented as: (Blue): Investors understand that their principal will be at low risk (Yellow): Investors understand that their principal will be at medium risk (Brown): Investors understand that their principal will be at high risk
  • Fund Inception 31 July 2006 Assets INR 1,870.71 crores Modified Duration 0.24 years Average Maturity 0.26 years Fund Positioning Ideal choice for risk averse investors who wish to invest their short-term cash surplus in a portfolio of money market assets and short-term debt. Invests predominantly into liquid, quality short term assets. DSP BlackRock Money Manager Fund 12 Credit Quality Maturity Distribution (excl. current assets) Duration Movement (days) Asset Allocation 41.94% 23.79% 9.49% 15.55% 3.03% CD CP FD NCD Repo/CBLO 4.08% 0.29% 16.12% 11.42% 36.72% 25.33% 6.38% 0% 10% 20% 30% 40% <= 1 week > 1 week to 15 days > 15 days to 1 month Month 2 Month 3 Months 4 to 6 Months 7 to 12 %ofPortfolio 88 117 106 128 131 55 87 122 116 94 99 75 86 0 25 50 75 100 125 150 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 65.72% 19.64% 0.79% 2.66% 3.05%8.14% A1+ Cash and Cash Equivalent/FDs AA- AA AA+ AAA Data as of 28 February 2014. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments. FOR PROFESSIONAL INTERMEDIARIES ONLY
  • Why invest in Fixed Income Funds of DSP BlackRock Mutual Fund 13  Emphasis on superior credit rating  Risk management process  Credit quality of the portfolio has been maintained at a high level  Liquidity is maintained without diluting the credit quality  Active management FOR PROFESSIONAL INTERMEDIARIES ONLY
  • FixedIncomeInvestmentProcess 14 Portfolio Implementation Interest Rate Risk Cash Flow Risk Credit Risk Liquidity Risk Macroeconomic Trends Reserve Bank of India Policy Interest Rate Outlook Credit Trends Current Interest Rate Environment Liquidity Requirements Investment Guidelines Rating Agency Requirements (If Applicable) Market Analysis Portfolio Management Investment Parameters Portfolio Monitoring DV01/ Duration Rating Exposure Liquidity Buckets Issuer Exposure RQA# Driven Sector Exposure FOR PROFESSIONAL INTERMEDIARIES ONLY # RQA is acronym for Risk and Quantitative Analysis
  • 15 Proposal evaluated by Credit Committee and limits assigned for amount and tenure Ownership Profile and Shareholding Management Quality Balance Sheet Strength Operating Strength Credit Rating Assigned Review of Rating Rationale Call/Meeting with Rating Analyst Credit Rating Agencies Internal Company Analysis Views from Equity Perspective Ongoing Monitoring Periodic financial updates Regular contact with management Annual Review Tracking Mutual Fund Industry Exposure Event Specific Analysis Views from DSPBRIM Equity Investment team Call/Meeting with Management Views from Sell Side Equity Analysts Credit Risk Management Process FOR PROFESSIONAL INTERMEDIARIES ONLY
  • Fixed Income Investment Process: Role of Risk Management RQA team is responsible for credit risk management and monitoring of portfolio risk (interest rate, credit and liquidity risks) DSP BlackRock Investment Managers (DSPBRIM): Credit/ risk management operation:  Maintain very high credit quality standards, limit duration risk, and manage issuer concentrations continuously  A four-member team continuously monitors and reviews all investments  Risk limits are assigned in consultation with the CIO  Risk limits are assigned based on • Ability & capacity of the concerned issuer – Balance sheet strength : Total net worth, total borrowings, Debt/Equity ratio – Operating strength : Free cash flow generation, PAT • Proposed exposure as a %age to total rating limit • Proposed exposure as a %age of other mutual fund holdings • Ratings assigned by CRISIL (S&P affiliate), ICRA (Moody’s affiliate) and India Ratings; conversations with rating analysts • Feedback from DSPBRIM’s equity investment team for companies with listed equities • For new credits, meetings with company management and/or sell side analysts  Endeavour has been to be conservative on the credit risk side  On structured transactions, we do not initiate risk if structure is too complicated 16 FOR PROFESSIONAL INTERMEDIARIES ONLY
  • Fixed Income Investment Team 17 Laukik Bagwe (12) Vice President Co Fund Manager Vivek Ved (12) Asst. Vice President Co Fund Manager Manprit Bhurji (10) Asst. Vice President Chief Investment Officer S Naganath (25) Macro research & investment strategy Portfolio Management Dhawal Dalal (16) Head - Fixed Income Portfolio Managers/Research Analysts Macro View Market Analysis Portfolio Management In-depth research Wider BlackRock Highly experienced, rigorous approach, global reach Credit Risk Management Pankaj Sharma (20) Head - Risk Management and Business Development Risk and Quantitative Analysis Years in brackets ( ) is years of investment or investment-related experience Jigna Anandpara (6) Manager Interaction with BlackRock PMs/Analysts Risk & Quantitative Analysis professionals Nikhil Agarwal (5) Manager Arka Kundu (3) Manager Aparna Karnik (10) Vice President
  • Disclaimers Statutory Details: DSP BlackRock Mutual Fund was set up as a trust and the settlers/sponsors are DSP ADIKO Holdings Pvt. Ltd & DSP HMK Holdings Pvt. Ltd. (collectively) and BlackRock Inc. (Combined liability restricted to Rs. 1 lakh). Trustee: DSP BlackRock Trustee Company Pvt. Ltd. Investment Manager: DSP BlackRock Investment Managers Private Limited. Risk Factors: Mutual funds, like securities investments, are subject to market and other risks and there can be no assurance that the Scheme’s objectives will be achieved. As with any investment in securities, the NAV of Units issued under the Scheme can go up or down depending on the factors and forces affecting capital markets. Past performance of the sponsor/AMC/mutual fund does not indicate the future performance of the Scheme. Investors in the Schemes are not being offered a guaranteed or assured rate of return. Each Scheme is required to have (i) minimum 20 investors and (ii) no single investor holding>25% of corpus. If the aforesaid point (i) is not fulfilled within the prescribed time, the Scheme concerned will be wound up and in case of breach of the aforesaid point (ii) at the end of the prescribed period, the investor's holding in excess of 25% of the corpus will be redeemed as per SEBI guidelines. The name of the Schemes do not in any manner indicate the quality of the Schemes, its future prospects or returns. Investors are advised to consult their own legal, tax and financial advisors to determine possible tax, legal and other financial implication or consequence of subscribing to the units of DSP BlackRock Mutual Fund. For scheme specific risk factors and more details, please read the Scheme Information Document, Statement of Additional Information and Key Information Memorandum of respective Scheme available on ISC of AMC and also available on www.dspblackrock.com. Mutual Fund investments are subject to market risks, read all scheme related documents carefully. 18 FOR PROFESSIONAL INTERMEDIARIES ONLY