Paytm Money - Foundation

Masterclass

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What I plan to do today…

Dig deeper into the nuances of

‘Fixed income’ investing
The role of debt in your portfolio
A framework for debt investing
Important parameters of Debt
funds…

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 Agenda
■ What is the mantra to wealth creation ??
■ Understanding fixed income/bonds
■ Fixed Income Mutual funds - A Mystery?
■ 3 Lens Spectacle
■ Some common terms to understand – fixed income
funds in mutual funds
■ ETF or Mutual Fund?

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 WHAT IS THE MANTRA
TO WEALTH CREATION ??

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Just what the ‘Wealth doctor’ would
prescribe!

• Asset Allocation

• Not falling prey to the Greed and fear

cycle

• No interruption to the Compounding

process

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ASSET ALLOCATION : Key To Long-Term
wealth creation
Winners Rotate

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 Two main asset classes – Equity & Fixed
Income
Equity Fixed Income

High Growth Potential to Relatively

Focus on
potential but Beat inflation Stable
Income &
volatile growth
Stability
potential
Power of
Compounding Power of
Compounding

Pro cyclical Counter

The Quick Fox
Asset cyclical asset
The Quick Fox
Focus on
Capital Capital
Appreciation Preservation

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 UNDERSTANDING
FIXED INCOME/BONDS

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 The Role of Bonds in Asset Allocation

Graphical Representation of the ‘Investment journey of Equity, Debt and Asset Allocation 9
 Counter Cyclical Allocation

Pro-cyclical Counter-cyclical
Higher risk assets Lower risk assets

High Yield Sovereign

Asset allocation through un-
correlated assets

Equities AAA

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Fixed Income Investment avenues
DON’T BE
FIXED WITH THE NOTION
Fixed THAT Small Savings
Bonds
FIXED INCOME INVESTINGschemes
Deposits
STARTS AND ENDS WITH
FIXED DEPOSITS!
Mutual
PPF
Funds

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FIXED INCOME MUTUAL
FUNDS
A MYSTERY?

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Why is Fixed Deposit attractive?

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3 LENS SPECTACLE
तीन आँखों वाला चश्मा

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3 Lens Spectacle

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 Asset Allocation Framework for Fixed
Income

Asset Allocation

Liquidity Core Satellite

Suitable for parking Controlled (Duration

surplus savings; as Credit Duration
and Credit)
emergency corpus
Suitable for investors looking to take
Suitable for bulk higher risks (Credit, Duration or both)
of your allocation in order to generate higher returns

Match strategy & duration of fund with your goals.

E.g. Low duration funds for your near term goal

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 Some additional points when investing in Fixed
Income Mutual Funds

Aware
Requirement
from MF
4 of False
Premises

3
2 Identifying
your risk

1 profile

Identifying Risk in Debt

Mutual Funds schemes

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But…do not BUY Fixed income MF if

You Need
guaranteed
return

You believe
that Gain is
mine loss is
others
XFixed
Income
MF
You want
significantly
higher return
than high
quality FDs

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 Debt Categorisation – Match your risk and tenor
Near term goals (upto 1 year )

Ultra short Low Money

Overnight Liquid
Duration Duration Market

Mandate
Driven
Short to Moderate
term goals > 3 years goals
Medium Long Gilt Fund
Short Medium with 10 year
to Long Duration
Duration Duration constant
Duration Fund duration

Funds that can run any maturity/strategy/credit quality

Corporate Bond, Credit Risk, Banking & PSU, Gilt,
Floater, Dynamic

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 Philosophy of Core bucket

Invest for Safety Invest for Liquidity Relatively Stable

Return

High quality
instruments, High portfolio Risk adjusted
predominately liquidity return
AAA

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Beyond traditional avenues - Fixed Income Mutual Funds

Diversify
(beyond
traditional
methods)

Many modes
of transaction Tax Efficient
- Lumpsums & (indexation
SIPs & STPs & benefit)
SWPs Fixed
Income
MF

Variety of
Easy investing
options
& redeeming,
depending on
on Tap
needs/risk

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 SOME COMMON TERMS TO
UNDERSTAND – FIXED INCOME
FUNDS IN MUTUAL FUNDS

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The 3 Most ‘Vital Stats’…no, make it 4 !
‘GENERIC FACTSHEET’
Investment Objective ,Fund Manager, PORTFOLIO
AUM Details, Benchmark, Investment BOND 1
Options & Details etc. BOND 2
BOND 3
• Average Maturity BOND 4
BOND 5
• Modified Duration .
.
.
• Yield to Maturity .
.
• Credit Quality BOND X

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 Simplified Vital Info on the ‘Vital Stats’…
YIELD TO MATURITY AVERAGE MATURITY
• ‘The total return expected • ‘The weighted average of
on a bond if the bond is held the maturities of the
until maturity.’ underlying bonds.’

MODIFIED DURATION

• ‘Measurable change in the

CREDIT QUALITY
value of a security in
response to a change in • Originates from individual credit
interest rates.’ ratings of the bond

• For every 1% move in interest • Eg : A bond with AAA rating is

more trustworthy than a AA or A
rates, how much will your
rating
portfolio value move (in opp
direction),Eg: MD=4, then ?
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 Expense Ratio
Expense ratio is the cost of running and managing a mutual fund schemes which is
charged to the scheme. All expenses incurred by a Mutual Fund AMC will have to
be managed within the limits specified by SEBI

The expense ratio is calculated as a percentage of the Scheme’s average Net Asset
Value (NAV).

Expense ratio is not the only criterion while selecting mutual fund scheme. A
scheme with a consistently decent track record, but a higher expense ratio may be
better than the one with lower expense ratio, but gives poor returns.

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Sensitivity to Average Maturity !

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 Lastly – Remember the good old RD
Journey of an Equity SIP Journey of a Debt SIP
30%
3yr SIP into Equity 12% 3yr SIP into Debt
20% 10%
10%
8%
0%
6%
-10%
4%
-20%
S&P BSE 200 TRI 2% Crisil Short Term Bond Index
-30%
0%
Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

Jun-18

Jun-19

Jun-20
Dec-16
Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-17

Dec-18

Dec-19

Dec-20

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-19

Dec-20
Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

Jun-18

Jun-19

Jun-20
Volatile but potential for higher returns Relatively stable returns

Note: Calculations shown are only for illustration purpose. Past performance may or may not be sustained in future and the same may not necessarily provide basis for
comparison with other investments. 3year SIP performance on a rolling basis, with first SIP instalment starting from Jan’09. Data as on 1st February’21. Basis monthly
SIP at the beginning of the month. Source: MFI, Internal 27
 Lastly – Remember the good old RD
30% COMBO SIP - 3yr SIP into Equity and Debt
20%
10%
0% Participate in
higher returns
-10%
-20%
Cushion the
-30% downside
Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

Jun-18

Jun-19

Jun-20
Dec-15
Dec-11

Dec-12

Dec-13

Dec-14

Dec-16

Dec-17

Dec-18

Dec-19

Dec-20
60% Equity + 40% Debt S&P BSE 200 TRI

Your Debt SIP could help cushion the fall during downturns in Equity markets when SIP
returns in Equity turn negative, thereby playing an important part in balancing your
allocation.

Note: Calculations shown are only for illustration purpose. Past performance may or may not be sustained in future and the same may not necessarily provide basis for
comparison with other investments. 3year SIP performance on a rolling basis, with first SIP instalment starting from Jan’09. Data as on 1st February’21. Basis monthly
SIP at the beginning of the month. Source: MFI, Internal 28
Tell me honestly…Are debt MFs any good?!
• A bouquet of a variety of bonds. Exposure to diversified
portfolios with even ‘miniscule amounts’

• More than 16 types of fund categories for needs whether

overnight or a few decades!

• No tax bills till you redeem from the fund…and that too
with Indexation benefit if sold after 3 years from
investing date

• Can be used for STP/SWP

• Modular approach to investing, buy or sell only as many

units as required. Ideal for rebalancing and partial
redemptions

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ETF OR MUTUAL
FUND?

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 Who should opt for ETF

E If you have a Demat account and would want to buy/sell during the
day

T If you want a strategy that closely tracks a benchmark, without

active management

F If you want a low-cost option

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PROS ETFs – The Pros & Cons

Low cost option Limited exposure to

diverse strategies
Ease of investment
Limited potential for
Diversify via Passive
alpha (no active
management
management)
Automatic Rebalance
Restricted flexibility

CONS
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 In detail: ETF versus Mutual Funds
Features Mutual Fund ETFs
Net Asset Value
End of the day Real Time
(NAV)
Demat Compulsory No Yes
With AMC: Only in creation
With AMC only: for any unit size (typically a large
Subscription
amount (subject to minimum amount)
/redemption
subscription amount) On Exchange: 1 unit and
above
Switches/SIP/STP/S
Allowed Not available
WP
AMC has to accept If not in creation unit, investor
Liquidity subscription/redemption at has to depend on exchange
applicable NAV (uniformity) quoted bid/ask level

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Disclaimer:
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS
CAREFULLY.
The Disclosures of opinions/in house views/strategy incorporated herein is provided solely to enhance the
transparency about the investment strategy / theme of the Scheme and should not be treated as endorsement
of the views / opinions or as an investment advice. This document should not be construed as a research report
or a recommendation to buy or sell any security. This document has been prepared on the basis of information,
which is already available in publicly accessible media or developed through analysis of IDFC Mutual Fund. The
information/ views / opinions provided is for informative purpose only and may have ceased to be current by
the time it may reach the recipient, which should be taken into account before interpreting this document. The
recipient should note and understand that the information provided above may not contain all the material
aspects relevant for making an investment decision and the stocks may or may not continue to form part of the
scheme’s portfolio in future. The decision of the Investment Manager may not always be profitable; as such
decisions are based on the prevailing market conditions and the understanding of the Investment Manager.
Actual market movements may vary from the anticipated trends. This information is subject to change without
any prior notice. The Company reserves the right to make modifications and alterations to this statement as
may be required from time to time. Neither IDFC Mutual Fund / IDFC AMC Trustee Co. Ltd./ IDFC Asset
Management Co. Ltd nor IDFC, its Directors or representatives shall be liable for any damages whether direct or
indirect, incidental, punitive special or consequential including lost revenue or lost profits that may arise from or
in connection with the use of the information.

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THANK YOU

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