HDFC Money Market Fund ( An open ended debt scheme investing in money market instruments ) A portfolio with run down maturity^ Riskometer This product is suitable for investors who are seeking*: Income over short term. • to generate income/ capital appreciation by investing in money • market instruments *Investors should consult their financial advisers if in doubt about whether the product is suitable for them. ^Refer slide 4-6 for run down strategy 1
What are Money Market Instruments? Money Market Instrument Includes: Commercial papers • Commercial bills • Treasury bills • Government securities (having an unexpired maturity upto one year) • Call or notice money • Certificate of deposit, • Usance bills and • Any other like instruments as specified by the RBI / SEBI from time to time. • Typically, tenure of money market instruments ranges from 1 day to 1 year 2
Positioning (Debt Funds) Long Duration Medium Funds Duration Short Funds Duration Low Funds Duration RETURN Money Funds Market Funds Ultra Short Term Liquid Funds Funds RISK ( Maturity ) Upto 91 days$ 3 -6 months^ Upto 1 year$ 6 -12 months^ 1-3 years^ 3-4 years^ 4-7 years^ (1-4 years in adverse (1-7 years in adverse situation) situation) $ - Maximum maturity of a security ^ - Portfolio Macaulay Duration Macaulay Duration (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. It is defined as the weighted average time to cash flows of a bond where the weights are nothing but the present value of the cash flows themselves. It is expressed in years. The duration of a fixed income security is always shorter than its term to maturity, except in the case of zero coupon securities where they are the same. In view of the individual circumstances and risk profile, each investor is advised to consult his / her professional advisor before making a decision to invest. 3
Investment Strategy Currently, the fund intends to follow one of the investment strategies - buy money • market instruments with maturity upto 1 year and adopt a buy and hold (run down) strategy, thereby, allowing the maturity to reduce over time. Consequently, scheme returns are expected to be closely aligned to the prevailing • YTM, irrespective of the movement in interest rates over the run down tenor of the strategy. This strategy is being initiated in January-March quarter (rebalancing period). Hence, • the residual maturity will be less in this quarter every year. The portfolio shall generally be rebalanced in this period every year. The current investment strategy is subject to change depending on the market conditions and is subject to risks such as credit risk, settlement risk, risks arising on account of portfolio adjustments made due to large inflows/outflows. HDFC Mutual Fund/AMC is not guaranteeing /offering/communicating any returns/indicative yields on investments made in the said Scheme. 4
Run down Portfolio Strategy – Graphical representation Maturity Maturity is rebalanced when Portfolio Maturity is minimal; reset maturity will be done with the objective of optimizing returns over the target duration Month 0 Target Period The current investment strategy is subject to change depending on the market conditions and is subject to risks such as credit risk, settlement risk, risks arising on account of portfolio adjustments made due to large inflows/outflows. HDFC Mutual Fund/AMC is not guaranteeing /offering/communicating any returns/indicative yields on investments made in the said Scheme. 5
How does Run down Portfolio work? Scenario Analysis of Run Down Portfolio Strategy assuming the rebalancing is done on 1 st March every year Scenario Investment Portfolio Redemption Portfolio Portfolio Return Remarks Date Yield at the Date Yield at the ^ (Annualised) time of time of Investment redemption When investor redeemed during rebalancing period 1 1-Mar-15 7% 1-Mar-16 * ~7% It can be seen that the portfolio return 2 1-Aug-15 6% 1-Mar-16 * ~6% approximately matched the portfolio yield available at the 3 1-Nov-15 8% 1-Mar-16 * ~8% time of investment When investor redeemed before rebalancing period 4 1-Mar-15 7% 1-Aug-15 6% >~7% As the portfolio yield is lower than that of Mar-15, there would be valuation Gains 5 1-Mar-15 7% 1-Nov-15 8% <~7% As the portfolio yield is higher than that of Mar-15, there would be valuation * Yield at the time of redemption would not be relevant for HTM portfolio. Losses Interest rate/reinvestment risk would be minimal when redemption occurs during rebalancing period Disclaimer: Above illustration is purely to explain the concept of run down portfolio strategy, The scenario’s provided in the table above does not consider any risks such as credit risk, settlement risk, risks arising on account of portfolio adjustments made due to large inflows/outflows. The rate of return/yields shown are assumed figures and not to be construed as actual returns and/or indicative returns. Any expenses / charges have not been considered in the calculations. HDFC Mutual Fund/AMC is not guaranteeing/offering/communicating any returns/indicative yields on investments made in this Fund. The recipient should understand that the information provided above may not contain all the material aspects relevant for making an investment decision. In view of the individual circumstances and risk profile, each investor is advised to consult his / her professional advisor before making a decision to invest in the Scheme. HTM: Held To Maturity The current investment strategy is subject to change depending on the market conditions. 6 * Jan-Mar quarter (refer slide no.4) 6
Why HDFC Money Market Fund? Term spreads are high (refer slide 8) Steep yield curve (refer slide 9) Low interest rate risk Yield to Maturity likely to be higher than liquid funds No lock-in, no entry / exit load Currently, the fund has highest rated credit quality^ ^Refer slide no. 11 HDFC Mutual Fund/AMC is not guaranteeing /offering/communicating any returns/ indicative yields on investments made in this Fund. In view of the individual circumstances and risk profile, each investor is advised to consult his / her professional advisor before making a decision to invest in the Scheme. 7
Reasonable term spreads Attractive term spreads - Spread between CDs and Repo are high 2.50 2.00 1.50 1.23 1.00 Spread (%) 0.57 0.50 0.18 0.00 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 -0.50 -1.00 3m CD - Repo 6m CD - Repo 1Y CD - Repo CD: Certificate of Deposit Source: Bloomberg (Derivium) The graph shows term spreads as of a date. Historical performance indicators and financial market scenarios are not the reliable indicators for current or future performance. HDFC Mutual Fund/AMC is not guaranteeing/offering/communicating any returns/ indicative yields on investments made in this Fund. The above should not be construed as an investment advice or a recommendation by HDFC Mutual Fund/HDFC AMC. The above graph is for general information and illustrative purpose only. 8
Steep yield curve 1.25 1.05 1.00 0.75 Spread (%) 0.50 0.40 0.25 - (0.25) 6m CD - 3m CD 12m CD - 3m CD CD: Certificate of Deposit Source: Bloomberg (Derivium) The graph shows term spreads as of a date. Historical performance indicators and financial market scenarios are not the reliable indicators for current or future performance. HDFC Mutual Fund/AMC is not guaranteeing/offering/communicating any returns/ indicative yields on investments made in this Fund. The above should not be construed as an investment advice or a recommendation by HDFC Mutual Fund/HDFC AMC. The above graph is for general information and illustrative purpose only. 9
Suitability HDFC Money Market Fund is suitable for investors: Who want to lock-in the yields at current levels Have an investment horizon upto 1 year Who want to minimize the interest/reinvestment rate risk Investors with a need to park short term surpluses HDFC Mutual Fund/AMC is not guaranteeing/offering/communicating any returns/ indicative yields on investments made in the said Scheme. In view of the individual circumstances and risk profile, each investor is advised to consult his / her professional advisor before making a decision to invest in the Scheme. 10
Portfolio Characteristics Portfolio Classification by Rating Class Portfolio Classification by Asset Class (%) ≈ (%) ≈ AAA & Equivalent, A1+ & Commercial Papers 47.02 96.97 Equivalent Cash, Cash Equivalents and Certificate of Deposits 49.95 3.03 Net Current Assets Cash, Cash Equivalents and 3.03 AUM as (In Rs. Cr.) 8,276 Net Current Assets For complete portfolio details refer www.hdfcfund.com. Portfolio details provided as on September 30, 2019 11
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