HDFC Bank Research Debt Mutual Funds Write up May 2020

DSP Banking & PSU Debt Fund Fund Manager: Saurabh Bhatia, Vikram Chopra
SEBI Categorisation: Banking and PSU Fund
Investment Objective: The primary investment objective of the scheme is to seek to generate income and capital appreciation by
primarily investing in a portfolio of high quality debt and money market securities that are issued by banks and public sector entities/
undertakings. There is no assurance that the investment objective of the scheme will be realized.
Investment Features: According to the fund house, with the announcement of higher borrowings by the government, markets may get exposed
to a bit more volatility, but the fund house expects the trajectory of rates to continue to head lower. One of the expectations out of a higher
government borrowing is an announcement from the RBI to support the government securities market. Recently, whenever any segment of
market has evidenced dislocation, the RBI has addressed that segment of the yield curve by announcing support measures. As per the fund
house, with RBI doing a lot for the different segments in the market, the RBI is yet to announce measures for G-secs. The higher borrowing may
largely get addressed through different mechanisms, which can be measures like, Open Market Operations (OMO) calendar, rise in HTM Levels
for banks, monetising of fiscal deficit and putting a cap on Reverse Repo amount. This will eventually help in yields to come off before there are
signs of reversal in the rate cycle. As per the fund house, neither inflation nor CAD pose any form of risk. The only risk emanating from increased
borrowings, is likely to be supported by RBI’s intervention. As per the fund house, the future rates and environment at the shorter end of the yield
curve will be driven, primarily by the sustaining surplus liquidity environment. Even after increasing the Ways and Means Advances (WMA)
numbers from Rs.1 trillion to Rs.2 trillion, there was a need to push up the weekly auction amount under T- bills and dated G-secs. The
opportunities in the duration or sovereign segment can be looked at as the spread between the 10-year G-sec and MCLR rates. Keeping the
ballpark rate at 7.20%-7.25%, the large part of the yield curve from the 7-15 years, is trading on an average of 6.25%-6.50% on an annualised
basis. This implies that the bonds which are trading closer to MCLR, reflect a fair bit of opportunity, as the MCLR may not go further higher from
here and with hardly any credit growth and liquidity surplus, these rates need to come lower from here. This puts a virtual cap on upside risks to
sovereign yields. Since mid of March 2020, the fund house has moved the liquidity profile of the funds to the one of the most liquid segments (G-
secs and PSU bonds) and has maintained relatively higher cash levels, so that there is enough flexibility to maneuver the portfolios. As per the
fund house, this has helped the fund house, in volatile times. In DSP Banking & PSU Debt Fund, the average maturity of the portfolio stood at
3.82 Years in April 2020 as compared to 4.07 Years in March 2020. The fund’s exposure to G-secs stood at 17.56% in April 2020 as against
19.83% in the previous month. The fund’s exposure to Corporate Debt securities stood at 79.21% in April 2020. Amongst Corporate Debt, the
scheme has significant exposure to PSU Bonds and FI & Bank Papers. The fund had 100% of the portfolio in AAA & equivalent rated securities as
of April 2020. The YTM of the fund was 6.08% as of April 2020.
Modified Duration – 3.08 years
Fund Snapshot
DSP Banking & PSU Debt Fund G Sec AAA Sub AAA Cash & Others Money Mkt Instruments Average Maturity (Yrs)
Apr-20 17.56% 79.21% 0.00% 3.23% 0.00% 3.82
Mar-20 19.83% 79.65% 0.00% 0.53% 0.00% 4.07
Feb-20 15.51% 82.72% 0.00% 1.77% 5.22% 3.75
Jan-20 2.87% 95.21% 0.00% 1.92% 0.00% 3.06
Dec-19 4.06% 92.59% 0.00% 3.35% 0.00% 2.99
Nov-19 4.73% 88.63% 0.00% 6.63% 0.00% 3.44

Portfolio Composition as on 30 April 2020

Scheme Name Gilts/T-bills CD/CP Securitized Debt Corporate debt Cash & Others
DSP Banking & PSU Debt Fund 17.56% 0.00% 0.00% 79.21% 3.23%
Sectoral Composition as on 30 April 2020
Gilts/T- Cash &
Scheme Name FI & Bank Papers PSU Bonds NBFC Papers Other Corp. Debt
bills Others
DSP Banking & PSU Debt Fund 31.21% 48.00% 0.00% 0.00% 17.56% 3.23%

Features of the scheme: Load structure – Exit load is Nil. AUM (April 2020) – Rs. 2424.27 Crs. Launch date – 14-Sept-2013.
Performance as on 30 April 2020
Scheme Name 1 Month 3 Months 6 Months 1 Year 2 Years 3 Years Since Inception
DSP Banking & PSU Debt Fund 1.04% 2.55% 4.30% 10.87% 9.29% 7.91% 8.76%
Index
Nifty Short Duration Debt Index^ 0.58% 1.95% 3.72% 9.09% 8.47% 7.64% --
Returns are absolute for =< 1 year and CAGR for > 1 year. Returns are for Growth Oriented Plans
^Returns of Benchmark CRISIL Short Term Bond Fund Index are not available.
This product is suitable for investors who are seeking^ :
 Income over a short-term investment horizon
 Investment in money market and debt securities issued by banks and public sector undertakings, public financial institutions and Municipal Bonds
^Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Source for entire data stated above is ICRA Analytics Ltd. (For Disclaimer of ICRA Analytics Ltd, refer https://icraanalytics.com/home/disclaimer)
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