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Knowledge session on debt funds
 

Knowledge session on debt funds

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    Knowledge session on debt funds Knowledge session on debt funds Presentation Transcript

    • 1 1 Debt Markets Offering Debt Fund to Customers
    • 2 2 Risks in Debt Market Interest Rate Risk Credit Risk Valuation Risk (Erstwhile) SEBIs circular Feb 2010 has mitigated the same
    • 3 3 Interest Rate Risk In Debt Funds Income comes from * Accrual of Interest * Capital appreciation or depreciation due to interest rate fluctutation Higher the Portfolio maturity – Higher is the risk and vice versa We never saw -ve returns or fall in NAVs in liquid funds earlier, but that too is possible although for very short periods in extreme circumstances
    • 4 4 Prior to SEBI Feb 2010 Circular Money market securities were valued on the basis of amortization upto six months Flexibility was given to fund houses in terms of spread management across G-secs and other rated securities Risk of non realisation of NAV in the above strategy was realised when mass redemptions were received in 2008 after Lehman crisis Hence Feb 2010 circular was released which laid down valuation norms of debt securities
    • 5 5 Essential Parameters for selection of debt funds - Investment Duration of customer - Understanding of customer of the product where his money will be invested and risks thereof - Interest Rate Scenario
    • 6 6 Remember the Thumb Rule The Duration of the Fund should be Equivalent to the investment duration of the client
    • 7 7 Suitablity of Product for Investor Horizon below 1 month Funds investing into Call money markets Upto 3 years Into static debt funds where their duration remains constant most of the times and try match investors duration and fund duration. * Static Debt funds are the ones which keeps the duration of fund in a specific range.
    • 8 8 Example  Returns after 3 months in a fund having 3 months avg duration will be equvivalent to current yield 9% i.e. 2.25%  But had he invested in a scheme having 3 year maturity duration the returns could be -0.5%  However educating the customer is very important because even for a 3 month investor and on rise of 1% i interest rates, the NAV can go down on a particular day by 0.25%(absolute) and may take some time to recover. (Instant returns can be -ve) When interest rates rise by 1 % and YTM is of 9%
    • 9 9 Income Funds / Dynamic Funds To be offered only if the investment horizon is beyond 3 years or the customer has a view that the interest rates will fall To be offered only to sopshticated investors who undrestands risk and are ready to take a short term beating in returns Only favorable in a falling interest rate regime otherwise short term funds are better
    • 10 10 Current Interest Rate Scenario 10 year G Sec History Mean since 1997 – 8.1% Median since 1997 – 7.88 % Movement Range - 13.65% - 5.02% 10 yr Gsec over 9% based on history looks favorable however the current scenario is quiet volatile and one should play safe
    • 11 11 NJ Initatives on Debt Shall come out with a recommended category for different tenures of investment Shall come out with recommended schemes across each debt category viz. Liquid / Shor Term / Income A matrix of scenario analysis will be shared on a quarterly basis with the partners
    • 12 12 Product Matrix * Portfolio Durations mentioned are the range of duration funds typically have in their portfolios. In certain time periods, funds can operate other durations also as deemed fit by the fund manager. Investment Horizon Product Category Portfolio Duration Example 0-3 Month Liquid Funds / Call Money Funds Less than 3 months HDFC CMF Saving 3 month – 1 Year Money Manager Funds 3M - 12M DSP BlackRock Money Manager Fund 1 Year + Short Term Funds / FMPs 1Y - 2Y HDFC STP 2 Years + Accrual/Income Opportunities Funds / FMPs 1Y - 2.5Y Birla Sun Life Short Term Opportunities Fund Plan 3 Years + Income Funds / Dynamic Bond Funds / FMPs 3Y - 6Y HDFC Income Fund
    • 13 13 Recommendations Money Manager Funds Short Term Funds No Scheme Name AAUM in Crs (June - 13) Expense Ratio (%) Cash YTM (%) Avg. Maturity (Yrs) Mod. Duration (Yrs) Exit Load 1 DSP BlackRock Short Term Fund 860.14 1.00 26.96 NA 0.79 0.68 Upto 6 months 0.50% 2 Kotak Bond Short Term Plan 2,214.12 1.13 3.10 10.45% 2.53 1.88 Upto 90 Days 0.50% 3 Reliance Short Term Fund 3,376.19 1.04 13.06 10.46% 2.11 1.75 Upto 6 months 0.50% 4 Tata Short Term Bond Fund 270.97 1.22 8.00 10.50% 1.34 1.17 Upto 180 Days 0.50% Name AAUM in Crs (June - 13) Expense Ratio (%) Exit Load Birla Sun Life Cash Manager - Gr 3,113.29 0.78 NIL DSP BlackRock Money Manager Fund - Gr 2,110.66 0.92 NIL HDFC CMF - Treasury Advantage Plan - Gr 8,604.18 1.14 NIL Kotak Flexi Debt Scheme Plan A - Growth 1,711.86 0.74 NIL
    • 14 14 Recommendations Accrual Funds Income Funds Scheme Name AAUM in Crs (June - 13) Expense Ratio (%) Cash YTM (%) Avg. Maturity (Yrs) Mod. Duration (Yrs) Exit Load 1 Birla Sun Life Income Plus 5,143.96 1.77 19.43 9.04% - 5.49 Upto 365 Days 1% 2 BNP Paribas Bond Fund 279.35 1.93 8.32 10.77% 1.81 1.30 Upto 1 year 1% 3 DSP Blackrock Bond Fund 231.50 2.21 48.76 NA 3.46 2.18 Upto 12 months 1.00% 4 Kotak Bond Fund 6,971.17 1.80 4.32 9.40% 9.58 5.38 Upto 180 days 1% 5 L&T Triple Ace Bond Fund 846.09 2.00 19.78 NA 4.54 2.74 Upto 9 months 1.50% 6 SBI Magnum Income Fund 5,266.21 1.74 26.50 9.30% 4.85 3.18 Upto 1 year 1% 7 Tata Income Fund 1,272.45 1.11 13.93 9.73% 4.50 3.26 Upto 90 Days 1% No Scheme Name AAUM in Crs (June - 13) Expense Ratio (%) Cash YTM (%) Avg. Maturity (Yrs) Mod. Duration (Yrs) Exit Load 1 Birla Sun Life Medium Term Plan 825.96 1.50 3.29 12.50% - 1.50 Upto 365 Days 2%, Between 365 to 730 Days 1% 2 Birla Sun Life Short Term Opportunities Fund 876.67 1.00 4.57 11.29% - 1.09 Upto 365 days 1% 3 DSP BlackRock Income Opportunities Fund 497.70 1.79 17.71 NA 1.21 0.92 Upto 9 months 1.00% 4 Kotak Income Opportunities Fund 449.19 2.49 0.00 11.00% 2.67 1.95 Upto 1 year 2% 5 L&T Income Opportunities Fund 143.40 0.77 13.61 NA 2.25 1.80 Upto 1 Year 2% ,Between 1 to 2 Years 1% 6 Reliance Regular Savings Fund Debt Plan 2,548.32 1.79 4.03 10.89% 1.92 1.65 Upto 1 year 1%
    • 15 15 Scenario Analysis – Income Funds Returns are annualised for period of more than a year; Returns for rest of the periods are on an absolute basis. Scenarios are based on following assumptions: YTM (9.80%), Modified Duration (4.80 years) and Expense Ratio (1.80%) Assumptions are subject to change from time to time. Interest Rate Movement from current (bps) Interest Rate Movement 3 Month 6 Month 1 Year 2 year 3 Year 5 Year 100 -2.68 -0.55 3.70 6.26 7.12 7.80 50 -0.34 1.73 5.85 7.14 7.56 7.90 0 2.00 4.00 8.00 8.00 8.00 8.00 -50 4.34 6.28 10.15 8.86 8.43 8.10 -100 6.68 8.55 12.30 9.71 8.87 8.21 -150 9.01 10.83 14.45 10.56 9.30 8.32 -200 11.35 13.10 16.60 11.40 9.73 8.43 Expected Returns
    • 16 16 Scenario Analysis – Short Term Funds Returns are annualised for period of more than a year; Returns for rest of the periods are on an absolute basis. Scenarios are based on following assumptions: YTM (11%), Modified Duration (1.50 years) and Expense Ratio (1.00%) Assumptions are subject to change from time to time. Interest Rate Movement from current (bps) Interest Rate Movement 3 Month 6 Month 1 Year 2 year 3 Year 100 1.13 3.75 9.00 9.82 10.09 50 1.81 4.38 9.50 9.91 10.04 0 2.50 5.00 10.00 10.00 10.00 -50 3.19 5.63 10.50 10.09 9.96 -100 3.88 6.25 11.00 10.18 9.92 -150 4.56 6.88 11.50 10.27 9.87 -200 5.25 7.50 12.00 10.37 9.84 Expected Returns
    • 17 17 Scenario Analysis – Money Manager Funds Returns are annualised for period of more than a year; Returns for rest of the periods are on an absolute basis. Scenarios are based on following assumptions: YTM (10.75%), Modified Duration (0.40 years) and Expense Ratio (0.80%) Assumptions are subject to change from time to time. Interest Rate Movement from current (bps) Interest Rate Movement 3 Month 6 Month 1 Year 100 2.21 4.83 10.05 50 2.35 4.90 10.00 0 2.49 4.98 9.95 -50 2.63 5.05 9.90 -100 2.76 5.13 9.85 -150 2.90 5.20 9.80 -200 3.04 5.28 9.75 Expected Returns
    • 18 18 Thanks & More Details Nitin Sawant Financial Planner 9422518694 /9145354545