HDFC Mutual Fund has launched a new debt fund offering. On September 18, the leading fund-house has opened for subscription its HDFC Ultra Short Term Fund. The NFO closes on September 24. As the name suggests, the scheme is an open-ended ultra short term debt scheme investing in instruments such that the Macaulay Duration of the portfolio is between 3 months and 6 months.
For those who don’t know, Macaulay 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.
There are over 20 ultra short term funds in this space. Let us find out how HDFC Ultra Short Term Fund plans to be different.
Why ultra short-term
First, let us find out why should anybody invest in ultra short term funds. HDFC AMC believes that the absolute yield levels are attractive. Term spreads (spread between Repo and CDs is near three-year high) are good enough. The steep yield curve is giving faster roll down benefits. These funds also provide you with lower interest rate risk (Macaulay Duration between 3- 6 months). The YTM or Yield to Maturity in these funds is likely to be higher than liquid funds. Besides, there is no lock-in, no entry/exit load.
HDFC Ultra Short Term Fund currently aims to focus on maintaining superior credit quality. That is important given what we have seen other with many AMCs being caught in the IL&FS group fiasco.
Suitable for who
Ultra short-term funds are a category between liquid funds and money market funds.
HDFC Ultra Short Term Fund is suitable for investors who want a high degree of liquidity and lower interest rate risk. One should have an investment horizon of 2 to 6 months.
Fund Manager – Anil Bamboli
Benchmark – CRISIL Ultra Short Term Debt index
Minimum purchase amount – During NFO period, this is Rs 5000 and in multiples of Rs 10 thereafter.
Scheme re-opens within 5 business days from the date of allotment of units under NFO.
Investment options – Regular Plan, Direct Plan. Options under each plan: Growth and Dividend. Dividend Option offers Daily (Reinvestment), Weekly (Payout and Reinvestment) and Monthly (Payout and Reinvestment) facility.
Category returns – One year returns for peers have ranged between 4-7.5%. The three largest peers in terms of AUM include Aditya Birla Sun Life Savings Fund, Franklin India Ultra Short Bond Fund – Super Institutional Plan and Kotak Savings Fund Regular Plan (erstwhile Kotak Treasury Advantage Fund).
RupeeIQ view – The fund should be good for investors with a need to park short term surpluses, which they want to deploy later. But keeping in savings bank account will not generate much returns. The fund can be used to park funds and later as a channel to transfer funds systematically to other schemes. A few days ago, Axis MF had unveiled its own ultra short-term fund. Read the review here.
Disclaimer: This article is only for informational purposes. Investors should discuss with their financial advisor the scope of having this fund in their equity fund portfolio.