This document discusses building a risk-adjusted debt mutual fund portfolio for corporate treasury management. It outlines selecting the right debt funds based on objectives like capital protection and liquidity while evaluating risks like credit, interest rate, and liquidity. Parameters for screening funds include vintage, asset size, credit quality, interest rate sensitivity, costs and returns. Maintaining the portfolio involves monitoring against board mandates, category averages, benchmarks and internal models. Ranking models and automated workflows can help, with a focus on high yields, concentration risks, and redemptions. The overall aim is choosing low-risk debt funds suitable for capital preservation.
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Treasury summit_21st Oct.pptx
1. Building a Risk Adjusted Debt MF Portfolio
October 21, 2020
4th Annual Treasury
Management Asia Summit
2020
2. 2
Agenda…
Cash management
Liquidity planning and control
Management of interest, currency and commodity risks
Investments in low risk instruments
Contacts with banks
Corporate finance
Investments in low risk instruments (Debt Funds)
Choosing the right fund
Maintaining a relevant portfolio
Enablers
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Getting started…
Selection of mutual fund depends
on risk appetite of the investor
For treasuries capital protection is
often the primary objective
Debt is relatively low risk
compared with equity
However, debt funds are not risk-
free
Choosing the right fund is critical to
avoid capital erosion
16 Debt fund Categories
320+ Open-ended Funds
41 Fund Houses
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How to approach…
Define objective
Evaluate risks
Set parameters
Source data
Screen funds
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Defining objectives and evaluating risks…
Capital
Protection Liquidity
Long-run
Return
Optimization
Credit Risk
01
Interest Rate Risk
02
Liquidity Risk
03
Objectives
Key Risks
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Setting parameters (Board Mandates)
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02
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Only debt schemes
Approved AMCs and
categories
Caps on exposure to single
AMCs, schemes, sectors
Acceptable credit quality,
duration, liquidity indicator
Track record and corpus
Documented in Investment Policy and vetted by Investment Committee
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Relevant Categories and Risk Level…
SEBI has rejigged the Risk-o-meter
Risk level to be determined by an
underlying risk score computed
monthly
Risk-o-meter to be released monthly
To be effective from January
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10. Screening funds…
1 Vintage
E.g. Launch date >3 years
Investor Confidence
E.g. AUM>2000 Cr
3 Credit Quality
E.g. AAA-rated and
equivalent %of net
assets>85%
4
Interest rate sensitivity
E.g. Mod. Duration<3 years
Cost
E.g. Exp Ratio: 0.3-0.5
Exit load: Category
low/Nil
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2
Returns
E.g. Close to
category
average
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Only hand few funds
across the industry meet
ALL the criteria!!!
13. Run a ranking model…
Objective is to order funds within a fund category to determine its standing
Choose categories
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Determine ranking
parameters
Generate ranks
Apply filters
Determine
weightages
01
02
04
03
05
15. Watch out for…
1. High Yield to Maturity
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2. Concentration
3. Ratings put on review
4. Interpretation of Average
Maturity
5. Falling share price of
issuing entities
6. Heavy redemptions
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Enablers…
4. Timely information
1. Exhaustive and updated 5. Automated workflows
database
2.Unbiased and accurate
data
3. Good analytical
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1
3
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6.Integrated ranking
model
7. Dashboards
model 4
8. Quick shareables
