Closest you can get to an open ended FMP
Anil Bamboli
Senior Fund Manager – Fixed Income
HDFC AMC
- There’s an interesting twist to the HDFC Money Market Fund – while it is open ended, its fund strategy aims to deliver as close an experience as possible to FMPs – for investors who enter and exit during annual rebalancing periods.
- Anil takes us through how his one year run down strategy aims to capture best of both worlds – reduction in interest rate risk for investors who align entry and exit timing to rebalancing periods – while at the same time offering liquidity due to the open ended product construct.
WF: Can you please explain how the concept of run down maturity works and how does it benefit investors?
Anil: In a fixed income scheme, run down strategy is an investment strategy wherein the fund predominantly invest in securities which are scheduled to mature in a targeted maturity bucket.
In HDFC Money Market Fund, the scheme currently aims to use one-year run down strategy i.e. it will mostly invest in securities maturing in Jan-Mar 2020, subject to availability of appropriate securities. The scheme will also endeavour to invest incremental inflows in the same maturity bucket i.e. Jan-Mar 2020. This shall continue till the time the maturity timeline is reset to next maturity bucket i.e. thereafter incremental flows and maturing investments are reinvested in the new time bucket. Further, in case fund manager believes, due to shift / movement in yield curve upto one year or for any other reasons whatsoever, deviation in strategy is warranted then he may change / adapt his strategy accordingly.
Scheme will continue to follow HDFC Mutual Fund’s investment philosophy of SLR i.e. Safety, Liquidity and Return, generally in that order while selecting any security.
WF: How do the recent SEBI guidelines on valuation of debt papers impact this fund?
Anil: SEBI has taken a decision to mark to market all assets with more than 30 days maturity. Only assets with maturity of up to 30 days shall be amortised. The date of implementation is before June 20, 2019. This is not likely to materially impact the scheme as we intend to follow run down strategy and the portfolio will get rebalanced in January-March quarter.
WF: Does the portfolio strategy imply that for an investor who comes into this fund in March (reset period), he should expect close to YTM return only if he exits next March? What happens for investors who come in later – say in June/July 19?
Anil: An investor should get the returns closer to the prevailing net YTM at the time of investment provided he exits during the rebalancing period. However, we do not assure or guarantee returns. If he exits before or after rebalancing period, then the returns will be impacted by valuation gains/losses on account of prevailing money market rates.
WF: For the purpose of clarity, can you please explain the salient differences between an ultra-short term fund, a short term fund, a money market fund and a 1 year FMP?
Anil: Ultra Short Term funds will have portfolio Macaulay Duration between 3-6 months while the Short Term funds will have portfolio Macaulay duration between 1-3 years. They are free to invest in any fixed income security as long as they are maintaining required Macaulay Duration. Money Market Funds can invest only in Money Market Instruments usually with a tenor of upto one year. One year FMP can invest only in debt/money market instruments which mature on or before the maturity date of the scheme.
WF: What in your view is the investment argument for your money market fund now?
Anil: Currently, we are implementing run-down strategy only in this fund. The fund positioning is suitable for investors who want to minimize the interest rate risk and is best suited for investors with investment horizon ending during the rebalancing period of this Scheme.
Click here to download fund presentation of HDFC Money Market FundHDFC Money Market Fund
[An open ended debt investing in money market instruments)
Disclaimers:
The views are expressed by Mr. Anil Bamboli, Senior Fund Manager -Fixed Income at HDFC Asset Management Company Limited (HDFC AMC), as on 22nd March, 2019. The views are based on internal data, publicly available information and other sources believed to be reliable. The current investment strategies are subject to change depending on market conditions. The statements are given in summary form and do not purport to be complete. The views / information provided do not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information and are not intended to be investment advice. The information/ data herein alone are not sufficient and should not be used for the development or implementation of an investment strategy. The statements contained herein are based on our current views and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. HDFC Mutual Fund/AMC is not guaranteeing any returns on investments made in the Scheme(s). Neither HDFC AMC and HDFC Mutual Fund nor any person connected with them, accepts any liability arising from the use of this document. The recipient(s) before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice and shall alone be fully responsible / liable for any decision taken on the basis of information contained herein. For complete portfolio/details refer to our website www.hdfcfund.com
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