HDFC Asset Management Co. Ltd may have won the Morningstar best equity fund house award but its debt funds aren’t too bad either. Two of its debt funds were also awarded. Shobit Mehrotra, senior fund manager and head of credit, HDFC AMC, takes us through the debt fund scenario. Edited excerpts:
What is the investment philosophy of the fund?
The investment philosophy of the fund is to generate income/capital gains by investing in a range of short- to medium-term debt and money market instruments with a view to maximizing income while maintaining an optimal balance of yield, safety and liquidity.
Sticking to basics: HDFC mutual fund’s Shobhit Mehrotra. Abhijit Bhatlekar / Mint
How did you manage your fund in 2009 and how did you navigate duration in this period?
In 2009, the fund continued to focus on its core philosophy while taking advantage of the steep yield curve and relatively attractive corporate bond spreads. The duration or average maturity of the fund ranged between 18 months and 28 months—beginning the year at over two years and ending the year at around 18 months.
What is the impact of the recent rate hikes on short-term bond funds?
The first rate hike by RBI (Reserve Bank of India) has been very well taken by the market with virtually no impact on short-term yields. The portfolio yield of short-term bond funds continues to be quite attractive vis-a-vis reverse repo rates of 3.5%.
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What is the usual level of average maturity you are comfortable with? Few short-term funds have been known to remain invested in the higher maturity bracket of up to two years consistently.
In line with our view on rates, we are comfortable with an average maturity of around 18 months currently.
Do short-term funds attract a significant chunk of retail investors or do institutional investors dominate your investor base? What is the trend?
We have a good mix of both retail as well as institutional investors.
We are noticing a trend of increasing interest from the retail segment.
What do you think will trigger the retail investor’s interest in short-term funds such as ultra short-term funds and liquid funds?
In order to trigger retail investors’ interest in these products, greater degree of awareness about the product, accessibility and convenience of transactions needs to emphasized.
Graphics by Yogesh Kumar / Mint