hdfc corporate bond fund · hdfc corporate bond fund: portfolio positioning ... • investors...

HDFC Corporate Bond Fund

(An open ended debt scheme predominantly investing in AA+ and above rated

corporate bonds)

January, 2019

This product is suitable for investors who are seeking*:• Income over short to medium term.• To generate income/capital appreciation through investments predominantly in AA+ and above rated

corporate Bond.*Investors should consult their financial advisers if in doubt about whether the product is suitable forthem.

Riskometer

A portfolio of high quality corporate bonds!^

^Please refer slide 8

• Real Yields in India at historical high

• CPI outlook remains benign

led by food inflation

• Healthy Differential with US Real yields

• Sharp fall in oil prices eases pressure on CAD

– Fall in oil prices beneficial for CAD and INR

outlook

– Every USD 10 per barrel fall in crude prices

results in CAD falling by ~0.4% of GDP

• US Federal Governor’s comment that rates are “just

below” neutral rate indicates benign outlook for

rise in Fed rates

– US 10Y yields have come off materially from

the high made in Nov’18

Real Yields = Month-end 10Y GSec Yield and CPI; Updated till 30th

Nov’18. CPI-IW is used to calculate real yields for

period before 2012

FY16 FY17 FY18 H1FY19

Crude prices (USD

/bbl)50.2 48.8 56.7 75.0

CAD as % of GDP -1.1 -0.7 -1.9 -2.7

2.00

2.50

3.00

3.50

Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18

%US 10 Year Yield

Source: Bloomberg, RBI, Kotak Institutional research.

-12.0

-7.0

-2.0

3.0

Jan/03 Apr/06 Jul/09 Oct/12 Jan/16

%Healthy spread between US and India

Real Rates

-14.0

-4.0

6.0

Jan/03 Apr/06 Jul/09 Oct/12 Jan/16

% India's Real Rates at near historic

high

Interest Rates Outlook:Forces favouring lower Interest rates

2

Bank credit growth accelerating

• Outpacing the deposit growth

• Recovery in capex cycle likely to accelerate

credit growth further

8.0%

15.1%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18

Credit Growth Vs. Deposit Growth

Deposit growth % Credit growth %

18.0%

Jun/15 Nov/15 Apr/16 Sep/16 Feb/17 Jul/17 Dec/17 May/18 Oct/18

Excess SLR Securities with PSU Banks

Regulatory Requirement # Adj SLR*

* Adj SLR = Investments in Statutory Liquidity Ratio (SLR) Securities adjusted for securities under LAF

# Regulatory Requirements = SLR + Liquidity coverage requirement requirements (~15-17% of NDTL) – carve out allowed from SLR

Source: RBI, Kotak Institutional research, NSDL

1.3

-0.0

-1.4 -1.5

-2.9

-1.6

0.0 0.5

-1.4 -1.3

0.8 0.7

-5.0

-3.0

-1.0

1.0

3.0

Jan18

Feb18

Mar18

Apr18

May18

Jun18

Jul1

8

Aug1

8

Sep18

Oct18

Nov1

8

Dec18

USD bn Net FII Debt flows

Interest Rates Outlook:Forces adversely impacting interest rate

outlook

3

Excess SLR Investments, especially with PSU banks

• Incremental demand for G-sec could remain muted

Debt FII Flows remain volatile on back of rising

USD and global liquidity unwinding

• Net FII Debt Outflows CY18 stood at USD 6.9 bn

75

125

175

225

275

325

Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18

bps

NBFC Spread rises post IL&FS default*

Average AAA Spread

Average AA Spread

Source: Daily valuation provided by ICRA/CRISIL; Bloomberg; Data is updated till 31st

Dec 2018. Refer disclaimer on slide 17

Liquidity concerns post IL&FS default addressed by

• Timely actions by RBI and Government

• Securitisation / asset sale, unutilised bank

lines etc.

Growth expected to moderate for NBFCs

• Cost of funds rising with widening of spreads

• Risk aversion amongst lenders

Concern over NBFCs / HFCs with higher yielding real estate

exposures.

Driven by widening of spreads for NBFCs, even corporate bond

spreads have widened

* AAA Average spread is average spread of 10 large AAA rated NBFCs 3 Yr. bond yields over 3 Yr benchmark Gsec. AA Average spread is average spread of 5 large AA rated NBFCs 3 Yr. bond yields over 3 Yr benchmark Gsec^ AAA spread is spread of 3 Year AAA rated corporate bond yields over 3 Yr benchmark Gsec yields. AA spread is spread of 3 Year AA rated corporate bond yields over 3 Yr benchmark Gsec yields

40

60

80

100

120

140

160

180

200

220

Sep/18 Oct/18 Nov/18 Dec/18

bps Corporate bond spreads widens^

3 yr AAA Spread

3 yr AA Spread

In our opinion, cautious approach towards credit needs to be maintained

Liquidity concerns for NBFCs addressed, outlook is mixed

4

• Conflicting forces lead to a mixed outlook on interest rates

• Near term challenges of NBFCs have diminished; cautious

approach needs to be maintained

• In view of the above, a good strategy for fixed income

investments in current market is

Controlled duration

Low credit risk

HDFC Corporate Bond Fund ticks both the above requirements

Investments must be tailored to investor’s individual situation and objectives and therefore, investors should consult

their financial advisors to ascertain whether the products are suitable for them.

Current Fixed Income environment

5

HDFC Corporate Bond Fund: Sources of Returns

• Interest accruals

• Capital gains/losses due to rate movements

• Taking advantage of tactical opportunities in Corporate Bond vs.

Sovereign Bond spread

HDFC Corporate Bond Fund primarily focuses on returns through interest accruals

HDFC Mutual Fund/AMC is not guaranteeing/offering/communicating any indicative yields or guaranteed returns on investments made in the scheme.

6

HDFC Corporate Bond Fund: Portfolio Positioning

• Portfolio is focused on maintaining superior credit quality with

minimum investment of 80% in AA+ above rated corporate

bonds with focus on accruals.

• Fund manager will seek to maintain the Macaulay duration of

the Portfolio around 2-4 years.

The current investment strategy is subject to change depending on the market conditions. For complete portfolio details refer www.hdfcfund.com.HDFC Mutual Fund/AMC is not guaranteeing/offering/communicating any indicative yields or guaranteed returns on investments made in thescheme. The product positioning and intended duration is based on current view and is subject to change.

Macaulay Duration (Duration) measures the price volatility of fixed income securities. It is often used in the comparison of interest rate risk betweensecurities with different coupons and different maturities. It is defined as the weighted average time to cash flows of a bond where the weights arenothing 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 itsterm to maturity, except in the case of zero coupon securities where they are the same.

7

http://www.hdfcfund.com/

HDFC Corporate Bond

8

Source: MFI Explorer, AAA includes Sovereign, Cash, Cash Equivalents and Net Current Assets

0

0.5

1

1.5

2

2.5

3

3.5

4

Average Maturity (years)

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

AAA & Equivalent

High Quality Portfolio with range bound maturity

Analysis of Distribution of Returns since inception

9

Annual Rolling Returns

Annual Rolling - Since inception, the fund has given more than 6% returns 89% of the times.

3 Year Rolling Returns

3 year Rolling - Since inception, the fund has given more than 7.5% returns – 98% of the times.

1 year and 3 year Rolling returns are calculated based on daily frequency. For Detailed performance refer Slide no 14. Past performance may or may not be sustained in the future. HDFC Mutual Fund/AMC is not guaranteeing/offering/communicating any indicative yields or guaranteed returns on investments made in the scheme. Inception date: June 29, 2010

Annual Returns (%) % of times

Less than 6 11%

6% to 7.5% 13%

7.5% to 9% 31%

9% to 12% 44%

More than 12% 1%

Annual Returns(%) % of times

Less than 6 0%

6% to 7.5% 2%

7.5% to 9% 40%

9% to 12% 58%

More than 12% 0%

6

7

8

9

10

11

12

2

4

6

8

10

12

14

Jun-1

1

Dec-

11

Jun-1

2

Dec-

12

Jun-1

3

Dec-

13

Jun-1

4

Dec-

14

Jun-1

5

Dec-

15

Jun-1

6

Dec-

16

Jun-1

7

Dec-

17

Jun-1

8

Dec-

18

Fund Suitability

• The Fund is suitable for investors wanting to take

advantage of higher credit quality with relatively lower

volatility

• Ideal for investors having an investment horizon of 6 to

12 months or more

• Investors looking to diversify their debt holdings with

focus on accruals

10

HDFC Mutual Fund/AMC is not guaranteeing/offering/communicating any indicative yields or guaranteed returns on investments made in thescheme. The suggested investment horizon is based on current view and is subject to change.

Portfolio Statistics

11

Average Maturity Modified Duration Yield To Maturity

2.88 years 2.35 years 8.56%

For complete portfolio details refer www.hdfcfund.com. Portfolio details provided as on December 31, 2018.

Portfolio Classification by Asset Class(%)Portfolio Classification by rating class (%)

Sovereign 7.3

AAA/AAA(SO)/A1+/A1+(SO) & Equivalent 89.45

Cash,Cash Equivalents and Net Current Assets

3.25

7.32.15

87.3

3.25

0

20

40

60

80

100

G-Sec, SDL Securitized DebtInstruments

Credit Exposure Cash, CashEquivalents and

Net CurrentAssets

Nature of Scheme An open ended debt scheme predominantly investing in AA+ and above rated corporate bonds

Category of Scheme Corporate Bond Fund

Inception Date

(Date of allotment)June 29th, 2010

Investment ObjectiveTo generate income/capital appreciation through investments predominantly in AA+ and above rated

corporate bonds. There is no assurance that the investment objective of the Scheme will be realized.

Fund Manager $ Anupam Joshi

Investment Plan Regular Plan & Direct Plan

Investment OptionsUnder Each Plan: Growth & Dividend. The Dividend Option offers Dividend Payout and Reinvestmentfacility

Minimum ApplicationAmount. (Under EachPlan/Option)

Purchase: Rs. 5,000 and any amount thereafter

Additional Purchase: Rs. 1,000 and any amount thereafter

Benchmark

Additional Benchmark

CRISIL Composite Bond Fund Index

CRISIL 10 Year GILT Index

Fund Facts

12

$ Dedicated Fund Manager for Overseas Investments: Mr. Amar KalkundrikarFor further details, please refer to the Scheme Information Document.

Asset Allocation

13

Under normal circumstances, the asset allocation of the Scheme’s portfolio will be as follows:

Types of InstrumentsMinimum

Allocation (% of Total Assets)

Maximum Allocation (% of Total Assets)

Risk Profile of the instrument

Corporate Bond (including Securitised Debt)#

80 100 Low to Medium

Government Securities and Money Market Instruments

0 20 Low

Units issued REITs and InvITs

0 10 Medium to High

#Minimum 80% of the total assets shall be invested in AA+ and above rated corporate bonds

(including securitised debt)

The scheme may invest in the schemes of Mutual Funds in accordance with the applicable extant SEBI (Mutual Funds) Regulations as amended from timeto time. The Scheme may invest upto a maximum 75% of the total assets in Foreign Debt Securities. The Scheme may invest upto 100% of its total assets inDerivatives.For further details, please refer to the Scheme Information Document.

Scheme Performance Summary

14

Value of Rs 10,000 invested

Scheme Returns (%)

Benchmark Returns (%)

#


Returns (%) ##

Scheme (Rs)Benchmark

(Rs)#


(Rs)##

Last 1 year 6.46 5.91 6.01 10,646 10,591 10,601

Last 3 years 7.86 7.79 6.80 12,549 12,526 12,184

Last 5 years 8.62 9.23 8.35 15,122 15,554 14,935

Since inception 8.62 7.99 6.43 20,218 19,237 17,002

Returns greater than 1 year are compounded annualized (CAGR). The above scheme has been managed by Anupam Joshi since October 27, 2015.The above returns are of Regular Plan - Growth Option. #CRISIL Composite Bond Fund Index. ##CRISIL 10 Year Gilt Index. Different plans viz. RegularPlan and Direct Plan have a different expense structure. The expenses of the Direct Plan under the Scheme will be lower to the extent of thedistribution expenses / commission charged in the Regular Plan. Returns as on 31st December, 2018.

15

Performance of other schemes managed by the Fund

manager (Top 3 & Bottom 3)

Scheme

Managing scheme since1 year

3 year 5 year

CAGR (in %) CAGR (in %)

Anupam Joshi manages 14 schemes

Performance of Top 3 schemes managed by Anupam Joshi

HDFC FMP 1190D March 2016 (1) Mar 23, 16 8.95 NA NA

CRISIL Composite Bond Fund Index 5.91 NA NA

HDFC FMP 1161D July 2016 (1) Jul 27, 16 8.21 NA NA


HDFC FMP 1128D June 2016 (1) Jun 29, 16 7.88 NA NA


Performance of Bottom 3 schemes managed by Anupam Joshi


Crisil Composite Bond Fund Index 5.91 NA NA

HDFC FMP 1104D April 2016 (1) Apr 21, 16 7.07 NA NA




Past performance may or may not be sustained in the future. The above returns are of Regular Plan – Growth Option. Load is not taken into consideration for computation ofperformance. On account of difference in the type of the Scheme, asset allocation, investment strategy, inception dates, the performance of these schemes is strictly notcomparable. Top 3 and bottom 3 schemes managed by the Fund Manager have been derived on the basis of returns since inception. In case the benchmark is not available on theScheme’s inception date, the returns for the concerned scheme is considered from the date the benchmark is available. Returns as on 31st December, 2018. Different plans viz.Regular Plan and Direct Plan have a different expense structure. The expenses of the Direct Plan under the Scheme will be lower to the extent of the distribution expenses/commission charged in the Regular Plan.

Taxation

Resident Individual/HUF Domestic Companies @ NRI$/#

Dividend Distribution Tax Applicable To Schemes Other Than Equity Oriented Schemes (Payable By The Scheme)

25% + 12% Surcharge + 4% Cess = 29.12%

30% + 12% Surcharge + 4% Cess = 34.944%

25% + 12% Surcharge + 4% Cess = 29.12%

Capital Gains Taxation Applicable To Schemes Other Than Equity Oriented Schemes

Long Term Capital gains(Units held for a period of more

than 36 months) Unlisted Units

20% with indexation + Surcharge as

applicable + 4% Cess = 23.92% or 22.88%

20% with indexation + Surcharge as

applicable + 4% Cess = 23.296% or 22.256%

10% without indexation and foreign

currency fluctuation benefits +Surcharge as applicable + 4% Cess

= 11.96% or 11.44%

Tax Deducted at Source Nil Nil 11.96% or 11.44%

Short Term Capital gains(Units held for a period of less

than 36 months)

30%^ + Surcharge as applicable + 4%

Cess = 35.88% or 34.32%

30% + Surcharge as applicable + 4% Cess25%^^^ +Surcharge as applicable + 4% Cess= 34.944% or 33.384%= 29.120% or 27.820%

30%^ + Surcharge as applicable + 4%

Cess = 35.88% or 34.32%

Tax Deducted at Source Nil Nil 35.880% or 34.32%^

16

^ Assuming the investor falls in the highest tax bracket. Surcharge as the rate of 7% for domestic corporate unit holders where the income exceeds Rs 1 Cr but less than Rs 10 Cr and therate of 12% where income exceeds Rs 10 Cr. Surcharge at 15%, is applicable where income of Individual, HUF, AOP, BOI, Artificial juridical person being unit holders exceeds Rs. 1 crore andsurcharge at 10% is to be levied in case of Individual, HUF, AOP, BOI, Artificial juridical person being unit holders where income of such unit holders exceeds Rs 50 lakhs but does not exceedRs. 1 crore.. Tax will be deducted at the time of redemption of units in case of NRI investors only. ^^^ If total turnover or Gross receipts during the financial year 2016-17 does not exceedRs. 250 crores.The information set out here is neither complete nor constitute as tax or legal advice. Due to the individual nature of taxation please consult your tax advisor before investing.

16

Disclaimer

This presentation dated 16th

January 2019 has been prepared by HDFC Asset Management

Company Limited (HDFC AMC) based on internal data, publicly available information and other

sources believed to be reliable. Any calculations made are approximations, meant as

guidelines only, which you must confirm before relying on them. The information contained in

this document is for general purposes only. The document is given in summary form and does

not purport to be complete. The document does not have regard to specific investment

objectives, financial situation and the particular needs of any specific person who may receive

this document. The information/ data herein alone are not sufficient and should not be used

for the development or implementation of an investment strategy. The statements contained

herein are based on our current views and involve known and unknown risks and uncertainties

that could cause actual results, performance or events to differ materially from those

expressed or implied in such statements. HDFC Mutual Fund/AMC is not guaranteeing any

returns on investments made in the Scheme(s). The data/statistics are given to explain general

market trends in the securities market, it should not be construed as any research

report/research recommendation. Past performance may or may not be sustained in future.

Neither HDFC AMC and HDFC Mutual Fund nor any person connected with them, accepts any

liability arising from the use of this document. The recipient(s) before acting on any

information herein should make his/her/their own investigation and seek appropriate

professional advice and shall alone be fully responsible / liable for any decision taken on the

basis of information contained herein.

Mutual fund investments are subject to market risks, read all scheme

related documents carefully.

17

Thank You

18

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