HDFC Floating Rate Income Fund December 2012

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Presenting
HDFC Floating Rate Income Fund
(An Open-Ended Income Scheme) (December 2012)

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Table of Contents
Definition and Fund Positioning Product Rationale Product Features and Asset Allocation Pattern Investment Strategy Portfolio Composition Fund Suitability Glossary and Disclaimer

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What is a Floating Rate Debt Instrument?
Floating rate debt instruments are debt securities issued by Central and / or State Government, corporates or PSUs with interest rates that are reset periodically The periodicity of the interest reset could be daily, monthly, quarterly, halfyearly, annually or any other periodicity that may be mutually agreed with the issuer and the fund. CP/CD/ other debt securities with maturity of less than 1 year are also treated as floating rate instruments as proceeds on maturity will be invested at the then prevailing interest rate & effectively the coupon gets reset Fixed rate assets converted into Floating rate assets through swaps

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Positioning of the Floating Rate Fund

Monthly Income Plans

RETURN

Gilt Funds - LTP Income Funds Short Term Plans Floating Rate - LTP Floating Rate - STP Liquid Funds

RISK

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Product Rationale
Conventional fixed interest rate investments are open to interest rate risk and hence volatility of price movements depending on interest rate fluctuations Floating rate instruments are re – priced at periodic intervals based on certain accepted benchmarks By virtue of this re – pricing, the price movements are minimised due to interest rate fluctuations Substantially minimises the interest rate risk for investors

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How Floaters Work
Coupon rates linked to accepted interest rate benchmarks Benchmarks are repriced periodically Credit spreads are generally fixed Duration linked to reset periods Fixed rate instruments swapped into floating rate minimises the interest rate risk Emphasis on current yields with focus on minimising volatility

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Product Features
Type of Scheme An Open-ended Income Scheme The scheme offers investors two plans: Short Term Plan Long Term Plan Long Term Plan & Short Term Plan (Retail Option)*: January 16, 2003 Short Term Plan (Wholesale Option): October 23, 2007 To generate regular income through investment in a portfolio comprising substantially of floating rate debt / money market instruments, fixed rate debt / money market instruments swapped for floating rate returns and fixed rate debt securities and money market instruements Entry Load (Short Term Plan & Long Term Plan): Not Applicable. Upfront commission shall be paid directly by the investor to the ARN Holder (AMFI registered Distributor) based on the investors’ assessment of various factors including the service rendered by the ARN Holder. Exit Load Short Term Plan: Nil Long Term Plan: In respect of each purchase / switch-in of units, an Exit load of 2% is payable if units are redeemed / switched-out within 12 months from the date of allotment No exit load is payable if units are redeemed / switched-out after 12 months from the date of allotment No Entry / Exit Load shall be levied on bonus units and units allotted on dividend reinvestment Shobhit Mehrotra (Since February 16, 2004) CRISIL Liquid Fund Index

Inception Date Investment Objective

Load Structure

Fund Manager $ Benchmark

$ Mr. Rakesh Vyas (Dedicated Fund Manager for Overseas Investments since May 10, 2012) * Fresh subscriptions are not accepted under HDFC Floating Rate Income Fund- Short Term Plan- Retail Option w.e.f. October 1, 2012.

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Product Features….(cont’d)
Short Term Plan (Wholesale Option) Options Growth Option Dividend Option offers daily dividend option (with reinvestment facility only) and Weekly* and Monthly** Dividend Option (with Payout and Reinvestment facility) *Every Monday (or immediately succeeding business day if that day is not a business day) ** Last Monday of the Month (or immediately succeeding business day if that day is not a business day) Minimum Application Amount Under each Option: Purchase: ` 10 lakh and any amount thereafter Additional Purchase: ` 1 and any amount thereafter Under each Option : Purchase: ` 5,000 and any amount thereafter Additional Purchase: `1,000 and any amount thereafter Long Term Plan Growth Option Dividend Option (weekly*) offers reinvestment facility only *Every Monday (or immediately succeeding business day if that day is not a business day)

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Asset Allocation Pattern
Under normal circumstances, the asset allocation of the scheme’s portfolio will be as follows: Types of Instruments Normal Allocation (% of Net Assets) Normal Deviation Risk Profile

Fixed Rate Debt Securities (including securitised debt, Money Market Instruments & Floating Rate Debt Instruments swapped for fixed rate returns)

0- 25

0 - 50

Low to Medium

Floating Rate Debt Securities (including securitised debt, Money Market Instruments & Fixed Rate Debt Instruments swapped for floating rate returns)

75 – 100

50 – 100

Low to Medium

Under normal circumstances at least 75% of the total portfolio will be invested in floating rate debt securities / money market instruments. This may be by way of direct investment in floating rate assets or fixed rate assets swapped for floating rate returns by using derivatives as described later in this section. Similarly under normal circumstances at least 25% of the total portfolio will be invested in fixed rate debt securities / money market instruments. The investment in securitised debt will not normally exceed 60% of the net assets of the respective plans under the scheme. The respective plans under the scheme may seek investment opportunity in Foreign Debt Securities (max. 60% of net assets of respective plans) subject to SEBI (Mutual Funds) Regulations, 1996. The scheme may use derivatives mainly for the purpose of hedging and portfolio balancing (max. 75% of net assets of respective plans including cash) based on the opportunities available subject to SEBI (Mutual Funds) Regulations, 1996.

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Tax Benefits / Consequences
HDFC Floating Rate Income Fund (the “Scheme”) is classified as an ‘Income Scheme’ and hence is not impacted by the DDT applicable for ‘Liquid Schemes / Money Market Mutual Funds’ Income distributed by the Scheme (both Plans) will be exempt from Income-tax in the hands of investors On income distribution if any made by the Scheme, additional income tax is payable under section 115 R of the Income - tax Act, 1961, at the following rates

Category of Investors

Dividend Distribution Tax (%)

Individuals / HUF

13.519% $

Others

32.445% $

$ Including applicable surcharge, education cess and secondary and higher education cess Investors should be aware that the fiscal rules / tax laws may be changed and there can be no guarantee that the current tax position may continue indefinitely In view of the individual nature of tax consequences, each investor is advised to consult his / her professional tax advisor

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Fund Manager Profile $
Name and Designation Educational Qualifications Mr. Shobhit Mehrotra - Senior Fund Manager – Fixed Income and Head of Credit. (Since February 16,2004) B. Text M.S. MBA (Clemson University, Sc, USA)

Experience

Collectively over 19 years of work experience in Fixed Income Markets, credit rating etc.

Assignments Held

Feb 16, 2004 till Date HDFC Asset Management Company Limited Feb 1997 to Feb 2004 Templeton Asset Management (India) Pvt. Ltd. Last Position Held – AVP and Portfolio Manager (Fixed Income) July 1992 to January 1997 ICRA Ltd. Last Position Held – Business / Investment Analyst, Member Executive Rating Committee

$ Mr. Rakesh Vyas (Dedicated Fund Manager for Overseas Investments since May 10, 2012)

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Investment Strategy

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The Fund aims to:
Enable investors to generate regular income in various interest rate scenarios Enable investors to minimise interest rate risk in a rising rate environment Generate regular income through investments in floating rate debt instruments Preserve capital through minimising duration and credit risk

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Current Investment Strategy
(Short Term Plan)

Portfolio will normally be skewed towards maturities higher than liquid schemes Focus on accrual income as the primary source of returns To primarily invest in CP/CDs / Other debt securities with maturity < 1 year, as currently the availability of floaters is limited

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Current Investment Strategy
(Long Term Plan)
Portfolio will normally be skewed towards longer term maturities Invest in CP/ CDs/ Other debt securities <1 year as currently the availability of floaters is limited Focus on accruals as the primary source of return Adequately capture the interest rate movements in the longer end of the money market yield curve Efficient use of derivatives such as interest rate swaps, forward rate agreements etc. to minimise interest rate risk and to create synthetic floaters

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Portfolio Composition
(As on November 30, 2012)

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Portfolio Composition
(As on November 30, 2012)
Short Term Plan Portfolio Classification by Asset Class (%) Long Term Plan Portfolio Classification by Asset Class (%)

Commercial Papers (CP) / Certificate of Deposit (CD)

79.31

Commercial Papers (CP) / Certificate of Deposit (CD)

99.72

Credit Exposure

10.33 Cash, Cash Equivalents and Net Current Assets 0.28

Cash, Cash Equivalents and Net Current Assets

10.36

Average Portfolio Maturity* – 78 days Modified Duration*: 71 days Yield to Maturity*: 8.59% Net Assets (` In crores) – 1,263.26**

Average Portfolio Maturity *– 115 days Modified Duration*: 106 days Yield to Maturity*: 8.50% Net Assets (` In crores) – 1,346.75**

** Average AUM for the quarter ended September 30, 2012 * Computed on the invested amount

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Portfolio Composition
(As on November 30, 2012)

Short Term Plan Portfolio Classification by Rating Class (%)

Long Term Plan Portfolio Classification by Rating Class (%)

AAA / AAA(SO)/ A1+/ A1+ (SO) & Equivalent

100.65

AAA / AAA(SO) / A1+ / A1+(SO) & Equivalent

99.72

AA+ & Below

1.44
Cash, Cash Equivalents and Net Current Assets 0.28

Cash, Cash Equivalents and Net Current Assets

(2.09)

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Fund Suitability

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Why HDFC Floating Rate Income Fund?
Protection against rising interest rates and steepening of the yield curve Extremely low interest rate risk; lower NAV volatility Ideal investment vehicle to generate regular income in various interest rate scenarios Superior risk return trade off; ideally suited during periods of uncertainty Maintains high credit quality Lower incidence of DDT as compared to ‘Liquid Funds / Money Market Mutual Funds” @
@ Resident Individual/HUF should be aware that the fiscal rules / tax laws may be changed and there can be no guarantee that the current tax position may continue indefinitely. In view of the individual nature of tax consequences, each investor is advised to consult his/ her professional tax advisor

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HDFC Floating Rate Income Fund is suitable for investors:
Requiring regular income in various interest rate scenarios Wanting to minimise interest rate risk Desiring to diversify their portfolio

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Glossary
Mark to Market Valuation of an asset (e.g. marketable securities, derivatives and other financial contracts) using a traded price or a derived price from the corresponding yield curve

Duration

Measure of the price sensitivity of a bond to a change in yield

Credit Risk

Risk of default

Interest Rate Risk

Risk that the price of a bond held in a portfolio will decline if market interest rates rise

Yield Curve

Graphical depiction of the relationship between yield and maturity

Interest Rate Swaps

Contract between two parties to exchange, on particular dates in the future, one series of cashflows (fixed interest) for another series of cash flows (floating interest) in the same currency and on the same principle for an agreed period of time An agreement between two counter parties to pay or to receive the difference between an agreed fixed rate and the interest rate prevailing on a stipulated future date, based on a notional amount, for an agreed period

Forward Rate Agreements

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Disclaimer & Risk Factors
DISCLAIMER: This presentation has been prepared by HDFC Asset Management Company Limited (“HDFC AMC”) on the basis of internal data, publicly available information and other sources believed to be reliable. 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 same should not be construed as investment advice to any party. Neither HDFC AMC and HDFC Mutual Fund (the 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.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.

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THANK YOU

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