ASSIGNMENT - 1
What are Debt Funds?
Investing in a debt instrument is similar to lending an advance to the issuing entity. Debt mutual funds aim
to provide interest income periodically along with scope for capital appreciation. Such funds invest in fixed-
income generating securities and are preferred by individuals, who do not wish to invest in volatile equity
markets. The issuer pays a fixed coupon which is known in advance along with tenor which helps a fund
manager of the scheme as well as investor to have a fairly decent idea about the likely returns on the money
he is planning to invest.
How do Debt funds work?
Debt Funds are a category of mutual funds which are professionally managed by a fund manager. The role of
the fund manager is to invest in securities that meet the investment objective of the fund. This is achieved by
investing according to the credit rating of the instruments and nature of the fund. The credit rating of the
issuer helps to determine whether the firm would be able to service interest obligations regularly. The fund
manager typically chooses to invest in high credit quality rated g instruments. A higher credit rating means
the issuer will be consistent in disbursing interest payments periodically, as well as pay back the principal
amount on maturity. By investing in high credit quality instruments, debt funds endeavour to provide safety
of principal.
The fund manager also determines the maturity period of instruments held in each portfolio depending on
the outlook of the interest rates in the economy. If the interest rates are predicted to fall, the fund manager
invests in long-term securities. Instead, if the interest rates are predicted to rise, investments are made in
short-term securities.
Different Types of Debt Funds:
Overnight Funds
Overnight funds invest in securities with an investment horizon of one day. Given the short duration, interest
fluctuations are minimal. These funds are often considered safe investments.
Liquid Funds
Liquid funds invest in short term money market securities which maturities of less than 91 days. If you wish
to park your funds for a short period bearing little risk then, liquid funds are a good investment option. They
typically offer higher returns than regular savings deposits as well.
Ultra Short-Duration Funds
These debt funds invest in debt and money market instruments which mature between 3 to 6 months. They
offer higher returns than a fixed deposit. Such funds carry a relatively lower interest rate risk.
Short Duration Funds
Short Duration Funds invest in debt and money market instruments that mature between 1-3years. They are
relatively low on risk. Ideal for conservative investors as they typically not subject to high-interest rate
fluctuations.
Corporate Bond Fund
Funds that invest at least 80% of their corpus in highest-rated corporate bonds are categorised as Corporate
Bond Fund. They offer scope to earn higher returns than those provided by short term debt funds. Though
you need to watch out for credit risk associated with downgraded ratings.
Credit Risk Fund
Credit Opportunities fund is a relatively new category that typically invests 65% of its assets into debt
instruments rated below highest credit quality. These funds take a call regarding proportion to invest in high
interest yielding low-rated bonds, unlike other debt funds that are focused on determining the tenure, or, the
average maturity. Hence, they may be riskier than other debt funds.
Gilt Funds
Funds that invest at least 80% of their corpus in government securities (G Secs) across maturities are called
Gilt Funds. The portion invested in Government securities virtually carries no credit risk.
Fixed Maturity Plans (FMPs)
Fixed Maturity Plans can only be invested in the initial offer period. They are close-ended debt funds. They
are locked in for a fixed tenure, which could vary from months to years. FMPs tend to offer superior and tax-
efficient returns if held for more than three years. However, there is guarantee of consistent returns.
Long Duration Funds
Long Duration Funds are debt mutual funds that are managed actively to generate steady returns over
different market scenarios. They mostly invest in long term securities comprising G Secs, Bonds and
Debentures. The duration of the fund is longer than seven years.
Dynamic Bond Funds
These funds invest in debt instruments across different issuers and have dynamic maturity periods. They are
suited for investors with a moderate appetite for risk and are looking at an investment horizon of between 3-
5 years.
What to consider before investing in a debt fund:
Investment Horizon
You should choose a debt fund depending on the investment tenure you have in mind. If it is a year or less,
liquid funds and ultra short-term funds may be suitable. In case of 1-3 years, short-term bonds could be the
best option. If you have a medium-term horizon of 3-5 years, corporate bond funds or dynamic bonds could
be suitable too. Usually, higher the tenure, more are the returns, except during a rising interest rate scenario.
Investment Objective
Choosing debt funds also depends on your overall investment goals. Is it an additional source of income
during retirement? Or, is it a safe fund for liquidity purposes? Investors also use debt funds as a means to
supplement income over salary.
Risk
Debt Funds carry lower risk than equities. However, they suffer from credit and interest-rate risks. If a fund
manager were to invest in low-credit quality bonds, then they carry high credit risks. Value of the portfolio
may go down due to delay or default in payment of interest and or capital. An interest rate risk occurs when
the prices of the bond tend to fall due to an increase in the rates of interest, thereby exposing the investor to
losses.
Returns
While debt funds are fixed-income securities, they do not guarantee returns. The net asset value of debt
funds is linked to the overall interest rates in the economy. The value of such funds tends to fall with rising
interest rates. They are therefore more suitable in a falling interest rate regime.
Cost
Debt Fund managers charge a fee to manage investment portfolios called expense ratios. They were
mandated by SEBI to have an upper cap of 2.00% for schemes up to a particular corpus size. Given the
lower rate of returns on debt funds compared to equity funds, it is essential to invest in debt funds for
extended time horizons.
RETURN FOR THE LAST THREE YEARS
HDFC Mutual Fund
HDFC Asset Management Company Ltd. or HDFC Mutual Fund is currently the largest mutual fund and
actively managed equity mutual fund in India. It is the most profitable asset management company (AMC) in
the country as of 31 March, 2018. The company manages assets worth Rs. 3.43 Lakh Crore as of 31 March
2019.
According to SEBI, its net worth stood at Rs. 61,402 Crore, total income at Rs. 35,229 Crore, profit (after tax)
at Rs. 12,163 Crore in March 2018.
During FY 2018-19, the AMC reported a YoY increase in profit of 61%. They registered a profit of Rs. 930
Crore in March 2019, a 31% YoY growth. For the March 2019 quarter alone, their profits stood at Rs. 276
Crore.
HDFC AMC recorded a 16.2% market share in the actively-managed equity oriented schemes in FY 2018-19.
In the last 5 years, the CAGR of:
Revenue from operators was 17.41%.
Operating profit was 20.08%.
Profit before tax was 21.35%.
Profit after tax was 21.07%.
Assets under management (AuM) was 25.86%.
Active equity AuM was 32.27%.
The company has around 210 branches located in more than 200 cities around India. It has 53 Lakh investors
with 91 Lakh live accounts.
HDFC Asset Management Company Ltd. received approval to act as an AMC from SEBI back in 30 June 2000
under the registration number MF/044/00/6. It also offers portfolio management/non-binding investment
advisory services since 18 September 2016 under the registration code PM /INP000000506 from SEB I.
Top Performing Hdfc Mutual Funds
1Y Fund
Fund Name Category Risk Rating
Returns Size(in Cr)
Moderately
HDFC Short Term Debt Fund Debt
Low
10.4% 5star ₹10,519
HDFC Retirement Savings Fund - Solution Moderately
Hybrid - Equity Plan Oriented High
10.3% 5star ₹371
Moderately
HDFC Equity Savings Fund Hybrid
High
6.5% 5star ₹4,346
Moderately
HDFC Top 100 Fund Equity
High
4.6% 4star ₹18,761
HDFC Dynamic PE Ratio Fund of Moderately
Funds
Others
High
7.7% 4star ₹22
1Y Fund
Fund Name Category Risk Rating
Returns Size(in Cr)
HDFC Credit Risk Debt Fund Debt Moderate 10.2% 4star ₹14,475
Moderately
HDFC Multi - Asset Fund Hybrid
High
11.1% 4star ₹206
Moderately
HDFC Hybrid Equity Fund Hybrid
High
8.4% 4star ₹20,582
HDFC Retirement Savings Fund - Solution Moderately
Hybrid - Debt Plan Oriented High
10.4% 4star ₹75
HDFC Retirement Savings Fund - Moderately
Equity Plan
Speciality
High
8.6% 4star ₹846
Moderately
HDFC Small Cap Fund Equity
High
-2.2% 4star ₹9,232
HDFC Medium Term Debt Fund Debt Moderate 11.0% 4star ₹1,184
Moderately
HDFC Balanced Advantage Fund Hybrid
High
7.3% 4star ₹44,497
Moderately
HDFC Gold Fund Fund of Funds
High
19.8% 4star ₹270
HDFC Capital Builder Value Moderately
Fund
Equity
High
3.0% 3star ₹4,496
ICICI Prudential Mutual Fund
ICICI Prudential Mutual Fund is one of India’s top 2 largest Asset Management Companies. It is one the
oldest and most profitable Mutual Funds. Most of their offerings are rated “AAAmfs” which indicate a high
degree of confidence and reliability.
ICICI Prudential was set up in 1993 with ICICI Bank and Prudential Plc acting as partners. The Prudential
Group is one of the world’s oldest, largest and most influential insurance companies.
ICICI Prudential Mutual Fund has played a major role in setting up the CRISIL rating system in India. As a
CIBIL score determines the creditworthiness of an individual, the CRISIL score determines the health of
Mutual Funds in India.
According to statistics made available as of 30th September 2018, the Average Assets Under Management or
AAUM of ICICI Pru Mutual Fund, as it is also known, is Rs 3.1 Lakh Crore. It is managed by the trustees of
the ICICI Prudential Trust Ltd and is over 30 years old.
The Mutual Fund was set up and incorporated in the same year- 1993. As of 31 March, 2019, it manages assets
worth over Rs. 3.2 Lakh Crore. The organisation has some of the best-known fund managers in the business,
and it is growing at a rapid pace.
ICICI Prudential Mutual Fund is headquartered in Mumbai and provides a wide array of funds designed to fit
every socioeconomic bracket. You can deposit a lump sum or start an SIP with ICICI Prudential via Groww
with minimal documentation and in a very short period of time.
Prudential Group has plans to offload 3.7% of its stake in the Mutual Fund to pare down its shareholding
pattern to below 25% as per SEBI rules.
Top Performing Icici Prudential Mutual
Funds
1Y Fund Size(in
Fund Name Category Risk Rating
Returns Cr)
ICICI Prudential Technology Fund Equity High 2.0% 5star ₹409
ICICI Prudential Ultra Short Term
Fund
Debt Moderate 9.0% 5star ₹7,136
ICICI Prudential Balanced Advantage Moderately
Fund
Hybrid
High
12.8% 5star ₹28,528
ICICI Prudential Credit Risk Fund Debt Moderate 10.9% 5star ₹12,126
ICICI Prudential Equity Savings Moderately
Fund
Hybrid
High
12.1% 5star ₹1,521
1Y Fund Size(in
Fund Name Category Risk Rating
Returns Cr)
ICICI Prudential Regular Savings Moderately
Fund
Hybrid
High
11.2% 5star ₹1,710
Moderately
ICICI Prudential Equity & Debt Fund Hybrid
High
11.2% 5star ₹23,073
ICICI Prudential Short Term Fund Debt Moderate 11.0% 4star ₹12,354
ICICI Prudential All Seasons Bond
Fund
Debt Moderate 12.3% 4star ₹3,071
ICICI Prudential India
Opportunities Fund - Direct Plan
Equity High 6.3% 4star ₹2,276
SBI Mutual Fund
The SBI Mutual Fund Trustee Company Private Limited was set up as a trust under the Trust Act of 1882. This
Trust controls the SBI Mutual Fund, one of India’s largest and oldest MFs. The SBI Mutual Fund is a Joint
Venture (JV) between one of India’s largest and most profitable banks, the State Bank of India, and Amundi,
which is a French asset management company.
The SBI Mutual Fund was set up on June 29, 1987 and was incorporated on February 7, 1992. It was India’s
second Mutual Fund after the Unit Trust of India started operations in 1963. In July 2004, the SBI decided to
divest 37% of the Fund and roped in Amundi as a partner.
Amundi is an asset management major created jointly by Crédit Agricole and Société Générale.
SBIMF has many firsts to its name. It was the first Indian Mutual Fund player to launch a ‘Contra’ fund, called
the SBI Contra Fund. In 2013, SBI Mutual Fund India acquired Daiwa Mutual Fund, part of the Daiwa Group
of Japan.
SBI Mutual Fund is the first in India to launch an ESG Fund. An acronym for Environment, Social and
Governance, the fund provides resources for sustainable investment in major markets.
In 2015, the Employees’ Provident Fund of India invested Rs 5,000 Crore for the first time in a Mutual Fund in
India via SBIMF Sensex ETFs or Exchange Traded Funds.
As of March 2019, the SBI Mutual Fund manages assets worth Rs 2.83 Lakh Crore. In early 2019, it moved
past Aditya Birla and HDFC Mutual Funds to emerge as the 3rd largest Mutual Fund body in India based on
Assets under Management or AUM.
The SBIMF is registered with the Securities and Exchange Board of India or SEBI.
According to the latest reports, the SBI Bank Mutual Fund has witnessed a 7% growth in AUM in 2019. This is
more than any other competing MF.
Top Performing Sbi Mutual Funds
1Y Fund Size(in
Fund Name Category Risk Rating
Returns Cr)
SBI Magnum Medium Duration
Fund
Debt Moderate 12.7% 5star ₹2,470
SBI Magnum Children’s Solution Moderately
Benefit Fund Oriented High
5.4% 5star ₹65
Moderately
SBI Small Cap Fund Equity
High
21.1% 5star ₹3,156
Moderately
SBI Focused Equity Fund Equity
High
25.3% 5star ₹6,924
SBI Multi Asset Allocation Moderately
Fund
Hybrid
High
11.7% 5star ₹254
SBI Banking & Financial
Services Fund
Equity High 25.8% 5star ₹1,409
SBI Magnum Constant Maturity
Fund
Debt Moderate 15.1% 5star ₹500
SBI Credit Risk Fund Debt Moderate 7.7% 4star ₹5,076
SBI Magnum Income Fund Debt Moderate 14.2% 4star ₹1,239
SBI Technology Opportunities
Fund
Equity High 9.8% 4star ₹155
NET ASSET VALUE ON 3 FEB 2020
HDFC BANK - 29.423
What is NAV?
Net Asset Value (NAV) is the market value of a mutual fund unit. The overall cost of a mutual fund depends
on this market value per fund unit. If you add up the market value of all the shares in the fund and divide it
by the number of total mutual fund units, the resulting figure will be NAV.
NAV is simply the price per share of the fund. Just like shares have a share price; mutual funds have a net
asset value.
Generally, mutual fund units begin with a unit-cost of ₹10 and it rises as the fund’s assets under
the AMC grows. So, a popular fund will have a higher net asset value than a less popular one. This brings us
to the next question. How important is the net asset value when selecting a mutual fund?
Assets Under Management
Assets under management are the overall market value of assets/capital that a mutual fund holds. The fund
manager manages these assets and makes all investment-related decisions on behalf of the investors. AUM is
an indicator of the size and success of a given fund house.
You can easily compare a fund’s assets under management in various timelines and performance with other
similar schemes. The AUM-value also includes the returns that a mutual fund earns. The asset manager can
invest this in securities, distribute to investors as dividends, or hold as per the investment mandate.
