HDFC Short Term Debt Fund (An open ended short term debt scheme - - PowerPoint PPT Presentation

HDFC Short Term Debt Fund

(An open ended short term debt scheme investing in instruments such that the Macaulay Duration^ of the portfolio is between 1 year and 3 years)

July 2020

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This product is suitable for investors who are seeking*:

• Income over short term
• To generate income/capital appreciation through investments in debt and

money market instruments

Riskometer

*Investors should consult their financial advisers, if in doubt about whether the product is suitable for them.

Giv ive a a boost st to to yo your inc income wit ith lo lower er vo vola lati tili lity!

In view of the individual circumstances and risk profile, each investor is advised to consult his / her professional advisor before making a decision to invest.

Positioning: Debt Funds

Liquid Funds Ultra Short Term Funds Money Market Funds Low Duration Funds Short Duration Funds Medium Duration Funds Long Duration Funds

RISK (Maturity) RETURN

Upto 91 days$ 3 -6 months^ Upto 1 year$ 6 -12 months^ 1-3 years^ 3-4 years^ (1-4 years^ in adverse situation) 4-7 years^ (1-7 years^ in adverse situation)

$ - Maximum maturity of a security ^ - Portfolio Macaulay Duration

Macaulay Duration (Duration) measures the price volatility of fixed income securities. It is often used in the comparison of interest rate risk between securities with different coupons and different maturities. It is defined as the weighted average time to cash flows of a bond where the weights are nothing but the present value of the cash flows themselves. It is expressed in years. The duration of a fixed income security is always shorter than its term to maturity, except in the case of zero coupon securities where they are the same.

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HDFC Short Term Fund : Portfolio Positioning

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• Portfolio is focused on generating returns through interest accruals with relatively

short duration.

• Invests predominantly in AAA rated or equivalent securities (~85.8%* of AUM as on

June 30, 2020)

• Fund seeks to maintain the Macaulay duration of the portfolio between 1-3 years

The current investment strategy is subject to change depending on the market conditions. For complete portfolio details refer www.hdfcfund.com. HDFC Mutual Fund/AMC is not guaranteeing/offering/communicating any indicative yields or returns on investments made in the scheme. The product positioning and intended duration is based on current view and is subject to change. * Includes G-sec, SDL, Cash & equivalent and Net current assets

Portfolio Statistics

Portfolio Classification by rating class % of Net Assets Sovereign 7.55 AAA/AAA(SO/CE)/A1+/A1+(SO/ CE) & Equivalent 72.94 AA+/AA 12.30 AA- / A+ 1.86 Below investment grade 0.04 Cash, Cash Equivalents and Net Current Assets 5.31

Average Maturity Modified Duration Macaulay Duration Yield To Maturity 3.46 years 2.66 years 2.83 years 6.71%

Portfolio Classification by asset class % of Net Assets G-Sec, SDL 7.55 Credit Exposure* 87.14 Cash, Cash Equivalents and Net Current Assets 5.31

* Includes securitized debt instruments For complete portfolio details refer www.hdfcfund.com. Portfolio details provided as on June 30, 2020.

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Well diversified exposures across sectors and corporate groups

5 For complete portfolio details refer www.hdfcfund.com. Portfolio details provided as June 30, 2020. Portfolio holdings are as a percentage of total portfolio

• holdings. Debt instruments referred above are not recommended by HDFC Mutual Fund/AMC. The Fund may or may not have any present or future

positions in these instruments.

Diversified Group Exposure

Financial Services % Public Financial Institutions (PFIs) 22.3 Housing Finance Companies (HFCs) 12.0 NBFCs 8.6 Banks 8.5 Top 5 Non-GoI Group Exposures 10.5 RIL Group 9.1 L&T Group 8.9 HDFC Group 7.8 Tata Group 3.6 Vedanta Group 39.9 Sub-Total 52.4 Total Non-GoI Groups Investments in 14 different groups Top 7 Sector Exposures 51.2 FINANCIAL SERVICES 9.2 ENERGY 8.2 CONSTRUCTION 4.6 OIL & GAS 4.5 METALS 4.1 SERVICES 4.0 TELECOM 14.2 OTHERS

Diversified Sector Exposure

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Attractive spread between Short term fund YTMs and Gsec

Sources: Bloomberg, NSE Index, HDFC calculations Past performance may or may not be sustained in the future. HDFC Mutual Fund/AMC is not guaranteeing/offering/communicating any indicative yields or guaranteeing returns on investments made in the scheme.

Spread of Short term fund YTMs over Gsec is significantly above long term average

• 0.5

1.0 1.5 2.0 2.5 3.0 3.5 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 May-18 Oct-18 Mar-19 Aug-19 Jan-20 %

Spread between Short Term Fund YTMs over 3Y Gsec

• 0.50

1.00 1.50 2.00 2.50 3.00 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Nov-17 Mar-18 Jul-18 Nov-18 Mar-19 Jul-19 Nov-19 Mar-20 %

Spread between Short Term Fund YTMs over 10Y Gsec

Simulation for XYZ Ltd maturing on 05-Mar-24

Given below is the simulation of likely return (%)* of a ~3.7 year bond namely 8.79% XYZ Ltd maturing

• n March 05, 2024 (modified duration ~ 3.1 and YTM 6.22%), under various scenarios
• XIRR returns for the instruments assuming the change in yield at the beginning of the respective period; without factoring re-investment

risk

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*HDFC Mutual Fund/AMC is not guaranteeing/offering/communicating any indicative yields or guaranteed returns on investments made in this scheme

Note 1: Above data shown is hypothetical in nature and based on assumptions, it does not reflect actual investment results, and do not guarantee future results. Changes in such assumptions could produce materially different results. Note 2: Instrument referred above are not recommended by HDFC Mutual Fund/HDFC AMC. The scheme may or may not have any present or future positions in the said instrument. Tenor (years) /Change in yield (%) 0.50 1.00 1.50 2.00 1.00%

0.83 3.99 5.04 5.56

0.75%

2.14 4.54 5.33 5.72

0.50%

3.48 5.09 5.63 5.89

0.25%

4.84 5.65 5.92 6.05

0.00%

6.22 6.22 6.22 6.22

• 0.25%

7.63 6.79 6.52 6.39

• 0.50%

9.06 7.37 6.83 6.56

• 0.75%

10.51 7.96 7.13 6.73

• 1.00%

12.00 8.55 7.44 6.91

Analysis of Distribution of Returns since inception

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Annual Rolling - Since inception, the fund has given 6% or higher returns 93.7% of the times. 3 year Rolling - Since inception, the fund has given more than 7.5% returns – 95.3% of the times.

1 year and 3 year Rolling returns are calculated since inception of the fund based on daily frequency. For Detailed performance refer Slide no 13-15. Past performance may or may not be sustained in the future. HDFC Mutual Fund/AMC is not guaranteeing/offering/communicating any indicative yields or returns on investments made in the scheme. Inception date: June 25, 2010 . Data is Upto June 30, 2020.

Annual Returns (%) % of times

Less than 6% 6.27% More than 6% 93.73% More than 7.5% 82.44% More than 9% 50.14%

Annual Returns (%) % of times

Less than 6% 0.00% More than 6% 100.0% More than 7.5% 95.32% More than 9% 50.50%

Short Term Funds are suitable for investors

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• Desirous

to take exposure in superior quality credit instruments

• The Scheme maintained over 80% of

AUM in AAA

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equivalent rated securities since Feb’15

• Having an investment horizon of more

than12 months

• With a need to park short term surpluses
• Using it as a channel to transfer funds systematically to other schemes

For complete portfolio refer to our website www.hdfcfund.com. Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

20 30 40 50 60 70 80 60 65 70 75 80 85 90 95 100 bps %

Tactically increasing allocation to non-AAA bonds depending on spread attractiveness

Allocation to AAA & Equivalent Securties Spread between AAA and AA bonds,RHS (Inverted)

How do we control risk ?

• Key strategies for risk control:
• Risk Assessment - Intense focus on underlying credit evaluation, focus on 4 C’s
• Risk Mitigation - Adequate covenants, right sizing, diversification, regular monitoring etc
• Risk Pricing – Take risk only when it pays
• Emphasis on Four C’s of Credit
• Character of Management (e.g. avoided exposure to a large distressed housing finance company)
• Capacity to Pay (e.g. avoided exposure to a large distressed infrastructure company)
• Collateral pledged to secure debt (e.g. recovered large portion of investment backed by shares of large media company)
• Covenants of debt (e.g. recovered investment from a MFI player due to covenants)

Risk Control achieved through conservative sizing of exposure based on proprietary Credit Scoring Model which factors in – Parentage, Financials, Rating & Outlook.

List of companies / Groups which faced stress* Deccan Chronicle Group Religare Group Dewan Housing Group Amtek Auto Limited Vodafone Idea Ltd. Anil Ambani Group Jindal Steel & Power

• Group

Sintex Group Cox & Kings Ltd Ballarpur (BILT) Group IL&FS Group (other than SPVs) Cafe Coffee Day Group Yes Bank Altico Capital IDBI Bank Jana Small Finance Bank Zee Promoter Group IL&FS SPVs$ (backed by NHAI annuity) Simplex Infrastructures$

• Over last decade, in our assessment, MFs have experienced instances of credit

stress* in nearly 18 companies / Groups.

• HDFC MF was not exposed to most such stressed cases (Highlighted in Red)
• Even is cases where HDFC MF had exposure, we recovered major portion of our

investment due to Covenants, good business/Collateral and parentage (Highlighted in

Green)

• Overall credit costs have been minimal for HDFC MF (Stressed exposures at ~0.66% of

AUM of affected schemes as on 30th June 2020)

$ Principal exposure to IL&FS SPV and Simplex Infrastructure at time of credit stress was ~Rs. 358 cr. As of June’20 after the 50% haircut the market value of these exposure was ~Rs. 179 cr or ~0.66% of total AUM of affected schemes. *Stress is defined as companies whose ratings were eventually downgrade to BBB or below rating category Refer disclaimer on slide 16

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Interest Rates Outlook

Factors supporting lower yields

• Sharp rate cuts by RBI and major central banks; easing bias

likely to continue

• Accommodative stance to remain till “it is necessary to revive

growth & mitigate the impact of COVID-19 on the economy” - RBI

• Concerns over global growth due to disruption caused by

spread of coronavirus

• Weak growth and soft commodity prices likely to result in

lower inflation in medium term

• Unconventional tools used by RBI to improve transmission of

rate cuts (Operation TWIST, LTROs, Targeted LTROs)

• Muted credit growth vs. deposit growth; Ample global and

domestic liquidity

Factors opposing lower yields

• Excess SLR securities holding of PSU banks
• Large supply of dated securities by Central and State

Governments

• Food prices may keep near term inflation over RBI’s

target of 4%

• Sharp reductions in oil production might lead to higher
• il prices over a year

Short to medium end of the yield curve offers better risk adjusted returns, in our judgement

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Fund Facts

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Nature of Scheme An open ended short term debt scheme investing in instruments such that the Macaulay Duration^ of the portfolio is between 1 year and 3 years Category of Scheme Short Duration Fund Inception Date (Proposed Date of allotment) 25th June, 2010 Investment Objective To generate income/ capital appreciation through investment in debt and money market

• instruments. There is no assurance that the investment objective of the Scheme will be realized.

Fund Manager $ Anil Bamboli Investment Plan Regular Plan & Direct Plan Investment Options Options under each plan: Growth and Dividend. Dividend Option offers Normal & Fortnightly (Payout and Reinvestment) facility. Minimum Application

• Amount. (Under Each

Plan/Option) Purchase: Rs. 5,000 and any amount thereafter Additional Purchase: Rs. 1,000 and any amount thereafter Benchmark CRISIL Short Term Bond Fund Index $ excluding Overseas investments, if any. Fund Manager for overseas investments: Mr. Chirag Dagli (since July 22, 2019)

Scheme Performance Summary

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Value of Rs 10,000 invested Scheme Returns (%) Benchmark Returns (%) # Additional Benchmark Returns (%) ## $ Scheme (Rs) Benchmark (Rs)# Additional Benchmark (Rs)##

Last 1 year 11.47 11.44 7.69 11,147 11,144 10,769 Last 3 years 8.59 8.36 7.14 12,806 12,726 12,302 Last 5 years 8.59 8.57 7.12 15,107 15,094 14,111 Since inception – June 25, 2010 8.88 8.48 7.01 23,468 22,614 19,719

Past performance may or may not be sustained in future Returns greater than 1 year are compounded annualized (CAGR). The above scheme has been managed by Anil Bamboli since June 25, 2010. The above returns are of Regular Plan - Growth Option. #CRISIL Short Term Bond Fund Index. ##CRISIL 1 Year T-Bill Index. Different plans viz. Regular Plan and Direct Plan have a different expense structure. The expenses of the Direct Plan under the Scheme will be lower to the extent of the distribution expenses / commission charged in the Regular Plan. Returns as on 30th June, 2020.

SIP Performance Summary

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Particulars Since Inception$ 10 Years 5 Years 3 Years 1 year

Total Amount Invested (Rs. in ‘000) 1210.00 1200.00 600.00 360.00 120.00 Mkt Value As on June 30, 2020 (Rs. in ‘000) 1924.67 1901.20 751.87 417.58 127.70 Returns (%) 8.91% 8.91% 8.97% 9.89% 12.17% Benchmark Returns (%) # 8.77% 8.78% 8.89% 9.83% 11.93%

• Addl. Benchmark Returns (%) ##

7.25% 7.25% 7.18% 7.54% 7.73% HDFC Short Term Debt Fund – Assuming Investment of ` 10,000 on the first Business Day of every Month

• ver a period of time.

Past performance may or may not be sustained in the future. CAGR returns are computed after accounting for the cash flow by using XIRR method (investment internal rate of return) for Regular Plan - Growth Option. Load is not taken into consideration for computation of performance. Different plans viz. Regular Plan and Direct Plan have a different expense structure. The expenses of the Direct Plan under the Scheme will be lower to the extent of the distribution expenses / commission charged in the Regular Plan. Managing Scheme since Jun 25, 2010. The above investment simulation is for illustrative purposes only and should not be construed as a promise on minimum returns and safeguard of capital. # CRISIL Short Term Bond Fund Index. ## CRISIL 1 Year T-Bill Index. $ Scheme Inception Date : Jun 25, 2010. Returns as on June 30, 2020.

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Performance of other schemes managed by the Fund manager (Top 3 & Bottom 3)

Scheme Managing scheme since 1 year 3 year 5 year CAGR (in %) CAGR (in %) Anil Bamboli manages 35 other schemes in existence for more than 1 year Performance of Top 3 schemes managed by Anil Bamboli HDFC Banking & PSU Debt Fund Mar 26, 14 11.36 8.26 8.70 NIFTY Banking & PSU Debt Index # 11.66 7.91 8.31 HDFC Overnight Fund Feb 06, 02 4.31 5.46 5.84 CRISIL Overnight Index # 4.48 5.58 5.96 HDFC Ultra Short Term Fund Sep 25, 18 7.61 NA NA CRISIL Ultra Short Term Debt Index # 7.43 NA NA Performance of Bottom 3 schemes managed by Anil Bamboli HDFC FMP 1146D February 2019 Feb 21, 19 11.40 NA NA CRISIL Composite Bond Fund Index # 13.08 NA NA HDFC FMP 1344D October 2018 Oct 24, 18 10.15 NA NA CRISIL Composite Bond Fund Index # 13.08 NA NA HDFC FMP 1146D April 2018 May 10, 18 8.08 NA NA CRISIL Composite Bond Fund Index # 13.08 NA NA

Past performance may or may not be sustained in the future. The above returns are of Regular Plan – Growth Option. Load is not taken into consideration for computation of

• performance. On account of difference in the type of the Scheme, asset allocation, investment strategy, inception dates, the performance of these schemes is strictly not comparable.

Performance of close-ended schemes is not strictly comparable with that of open-ended schemes since the investment strategy for close-ended schemes is primarily buy-and-hold whereas open-ended schemes are actively managed. Top 3 and bottom 3 schemes managed by the Fund Manager have been derived on the basis of returns since inception vis-à-vis the benchmark. In case the benchmark is not available on the Scheme’s inception date, the returns for the concerned scheme is considered from the date the benchmark is available. Returns as on 30th June, 2020. Different plans viz. Regular Plan and Direct Plan have a different expense structure. The expenses of the Direct Plan under the Scheme will be lower to the extent of the distribution expenses/ commission charged in the Regular Plan. NA – Not Available. # Benchmark of the Scheme.

Disclaimer

16 This presentation dated July 14, 2020 has been prepared by HDFC Asset Management Company Limited (HDFC AMC) based on internal data, publicly available information and other sources believed to be reliable. Any calculations made are approximations, meant as guidelines only, which you must confirm before relying

• n

them. Past Performance may

• r

may not be sustained in future. HDFC AMC/MF is not assuring/guaranteeing any returns in the Scheme. The information contained in this document is for general purposes only. The document is given in summary form and does not purport to be complete. The document does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. 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. Past performance may or may not be sustained in future. 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

• f information contained herein.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.

Thank You

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