A Liquid Mutual Fund has potential to provide good liquidity, low interest rate risk and the prevailing yield in the market. While liquidity is one factor of these funds, safe investments and ease of operations make them ideal cash management option for HNIs and corporate.
Liquid Funds invest in money market securities, commercial papers, short term NCD, FD ,CBLO etc. All the underlying investment are upto 91 days of residual maturity. Maturity restriction makes them relatively less sensitive to interest rate fluctuations, compared to other debt funds.
Liquid funds are fixed income funds ideal for investors with a short-term investment horizon and low risk appetite.
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A basic presentation on for first time investors in Liquid Fund.
1. Investing in Fixed Income Funds
March 2014
FOR PROFESSIONAL INTERMEDIARIES ONLY
2. Contents
2
Investing in Liquid funds
ď˝ Overview
ď˝ Possible Benefits of Investing in Liquid Funds
ď˝ Asset Class & Risk Profile
ď˝ Taxation of Fixed Income Funds
ď˝ Risks Involved
An update on Fixed Income Funds of DSP BlackRock Mutual Fund
ď˝ Fund Positioning & Current Snapshot
ď˝ Investment Strategy
3. Overview
A Liquid Mutual Fund has potential to provide good liquidity, low interest rate risk and the prevailing yield in the market. While liquidity is
one factor of these funds, safe investments and ease of operations make them ideal cash management option for HNIs and corporate.
Liquid Funds invest in money market securities, commercial papers, short term NCD, FD ,CBLO etc. All the underlying investment are
upto 91 days of residual maturity. Maturity restriction makes them relatively less sensitive to interest rate fluctuations, compared to other
debt funds.
Liquid funds are fixed income funds ideal for investors with a short-term investment horizon and low risk appetite.
The key benefits of liquid fund investments are:-
ď˝ Cash Management
ď˝ Safety
ď˝ Liquidity
ď˝ Returns
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FOR PROFESSIONAL INTERMEDIARIES ONLY
4. Possible Benefits of Investing in Liquid Funds
Diversification
Investorsâ money is spread across different securities and companies, depending upon the schemeâs investment objective.
This diversified exposure helps reduce the risk.
Professional Management
Portfolios are managed by highly qualified and experienced professionals.
Transparency
Detailed portfolios are published monthly.
Easy liquidity
Redemptions from Liquid Funds are on T+1 basis with certain specifications.
No Lock-In Period
Liquid Funds can be used even for overnight investments.
No Loads
Liquid Funds do not have any entry or exit loads hence investors are free to withdraw there money at any point of time.
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FOR PROFESSIONAL INTERMEDIARIES ONLY
5. Asset Class & Risk Profile
Asset class Risk Profile
Money Market Securities Credit Risk Price Risk
Treasury Bills NIL Low
Reverse-Repo Low Nil
Call Money & CBLO Low Nil
CPs and CDs Low Low
Corporate Debt Low to medium Low to medium
Short Term NCDs Low to medium Low to medium
Floating Rate Securities Low to medium Low to medium
Securitized debt Low to medium Low to medium
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FOR PROFESSIONAL INTERMEDIARIES ONLY
6. Risks Involved
Liquidity Risk
ď˝ Liquidity is a measure useful to analyze a fundâs ability to manage redemption pressures.
ď˝ On an average a large portion of a liquid fund portfolio consists of highly liquid assets, coupled with a comfortable component of
cash or cash equivalent securities. Therefore, the liquidity risk of a portfolio is mitigated to a large extent.
Interest Rate Risk
ď˝ This risk is low in liquid fund portfolios mainly due to their exposure to very short term assets.
ď˝ Lower average maturity of the portfolio also mitigates the interest rate risk since most of the investments are made in short dated
money market securities.
Credit Risk
ď˝ Typically liquid funds invest in highest credit rated papers issued by Banks and Corporate.
ď˝ Therefore, liquid fund portfolios are largely tilted towards the AAA/P1+ rated instruments.
6
FOR PROFESSIONAL INTERMEDIARIES ONLY
7. Dividend Distribution Tax from June 1, 2013 (For Fixed Income Scheme)
7
All Schemes Base Rate Surcharge Edu Cess Total
Institutional
Investors
30% 10.00% 3% 33.99%
Retail Investors 25% 10.00% 3% 28.33%
Source : Internal
FOR PROFESSIONAL INTERMEDIARIES ONLY
9. DSP BlackRock Liquidity Fund is suitable for investors seeking*
ď˝ Income over a short term investment horizon
ď˝ Investment in money market and debt securities with maturity not exceeding 91
days
ď˝ Low Risk (Blue)
DSP BlackRock Liquidity Fund
An open-ended Liquid Scheme
*Investors should consult their financial advisors if in doubt about whether the
product is suitable for them. Note: Risk may be represented as:
(Blue): Investors understand that their principal will be at low risk
(Yellow): Investors understand that their principal will be at medium risk
(Brown): Investors understand that their principal will be at high risk
10. DSP BlackRock Liquidity Fund
10
Credit Quality
Maturity Distribution (excl. current assets) Duration Movement (days)
Asset Allocation
Fund Inception 11 Mar 1998 Assets INR 4,468.46 crores
Modified Duration 0.05 years Average Maturity 0.05 years
Fund Positioning Ideal choice for risk averse investors who wish to invest their short-term cash surplus in a portfolio of money market assets and short-term debt.
48.17%
18.17%
23.19%
10.47% CD
FD
CP
Repo/CBLO
and Cash
Equivalent
26.52% 24.89%
28.63%
19.92%
0%
10%
20%
30%
40%
<= 1 week > 1 week to 15
days
> 15 days to 1
month
Month 2
%ofPortfolio
26
66
29
18
37
11 12
51
31
20
38
20 17
0
20
40
60
80
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
71.43%
28.57%
A1+ & equivalent
Cash and Cash
Equivalent/FDs
FOR PROFESSIONAL INTERMEDIARIES ONLY
Data as of 28 February 2014. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments.
11. DSP BlackRock Money Manager Fund is suitable for investors seeking*
ď˝ Income over a short-term investment horizon
ď˝ Investment in money market and debt securities
ď˝ Low Risk (Blue)
DSP BlackRock Money Manager Fund
An open-ended Income Scheme
*Investors should consult their financial advisors if in doubt about whether the
product is suitable for them. Note: Risk may be represented as:
(Blue): Investors understand that their principal will be at low risk
(Yellow): Investors understand that their principal will be at medium risk
(Brown): Investors understand that their principal will be at high risk
12. Fund Inception 31 July 2006 Assets INR 1,870.71 crores
Modified Duration 0.24 years Average Maturity 0.26 years
Fund Positioning
Ideal choice for risk averse investors who wish to invest their short-term cash surplus in a portfolio of money market assets and short-term debt.
Invests predominantly into liquid, quality short term assets.
DSP BlackRock Money Manager Fund
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Credit Quality
Maturity Distribution (excl. current assets) Duration Movement (days)
Asset Allocation
41.94%
23.79%
9.49%
15.55%
3.03% CD
CP
FD
NCD
Repo/CBLO
4.08%
0.29%
16.12%
11.42%
36.72%
25.33%
6.38%
0%
10%
20%
30%
40%
<= 1
week
> 1 week
to 15
days
> 15
days to
1 month
Month 2 Month 3 Months 4
to 6
Months 7
to 12
%ofPortfolio
88
117
106
128 131
55
87
122
116
94 99
75
86
0
25
50
75
100
125
150
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
65.72%
19.64%
0.79%
2.66%
3.05%8.14% A1+
Cash and Cash
Equivalent/FDs
AA-
AA
AA+
AAA
Data as of 28 February 2014. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments.
FOR PROFESSIONAL INTERMEDIARIES ONLY
13. Why invest in Fixed Income Funds of DSP BlackRock Mutual Fund
13
ď˝ Emphasis on superior credit rating
ď˝ Risk management process
ď˝ Credit quality of the portfolio has been maintained at a high level
ď˝ Liquidity is maintained without diluting the credit quality
ď˝ Active management
FOR PROFESSIONAL INTERMEDIARIES ONLY
14. FixedIncomeInvestmentProcess
14
Portfolio
Implementation
Interest Rate
Risk
Cash Flow
Risk
Credit
Risk
Liquidity
Risk
Macroeconomic
Trends
Reserve Bank of
India Policy
Interest Rate
Outlook
Credit Trends
Current Interest
Rate Environment
Liquidity
Requirements
Investment
Guidelines
Rating Agency
Requirements
(If Applicable)
Market
Analysis
Portfolio
Management
Investment
Parameters
Portfolio
Monitoring
DV01/
Duration
Rating
Exposure
Liquidity
Buckets
Issuer
Exposure
RQA# Driven
Sector
Exposure
FOR PROFESSIONAL INTERMEDIARIES ONLY
# RQA is acronym for Risk and Quantitative Analysis
15. 15
Proposal evaluated
by Credit Committee
and
limits assigned for
amount and tenure
Ownership
Profile and
Shareholding
Management
Quality
Balance Sheet
Strength
Operating
Strength
Credit Rating
Assigned
Review of
Rating Rationale
Call/Meeting with
Rating Analyst
Credit
Rating
Agencies
Internal
Company
Analysis
Views from
Equity
Perspective
Ongoing
Monitoring
Periodic
financial
updates
Regular
contact with
management
Annual
Review
Tracking
Mutual Fund
Industry
Exposure
Event
Specific
Analysis
Views from
DSPBRIM Equity
Investment team
Call/Meeting
with
Management
Views from
Sell Side Equity
Analysts
Credit Risk Management Process
FOR PROFESSIONAL INTERMEDIARIES ONLY
16. Fixed Income Investment Process: Role of Risk Management
RQA team is responsible for credit risk management and monitoring of portfolio risk
(interest rate, credit and liquidity risks)
DSP BlackRock Investment Managers (DSPBRIM): Credit/ risk management operation:
ď˝ Maintain very high credit quality standards, limit duration risk, and manage issuer concentrations continuously
ď˝ A four-member team continuously monitors and reviews all investments
ď˝ Risk limits are assigned in consultation with the CIO
ď˝ Risk limits are assigned based on
⢠Ability & capacity of the concerned issuer
â Balance sheet strength : Total net worth, total borrowings, Debt/Equity ratio
â Operating strength : Free cash flow generation, PAT
⢠Proposed exposure as a %age to total rating limit
⢠Proposed exposure as a %age of other mutual fund holdings
⢠Ratings assigned by CRISIL (S&P affiliate), ICRA (Moodyâs affiliate) and India Ratings; conversations with rating analysts
⢠Feedback from DSPBRIMâs equity investment team for companies with listed equities
⢠For new credits, meetings with company management and/or sell side analysts
ď˝ Endeavour has been to be conservative on the credit risk side
ď˝ On structured transactions, we do not initiate risk if structure is too complicated
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FOR PROFESSIONAL INTERMEDIARIES ONLY
17. Fixed Income Investment Team
17
Laukik Bagwe (12)
Vice President
Co Fund Manager
Vivek Ved (12)
Asst. Vice
President
Co Fund Manager
Manprit Bhurji
(10)
Asst. Vice
President
Chief Investment Officer
S Naganath (25)
Macro research & investment strategy
Portfolio Management
Dhawal Dalal (16)
Head - Fixed Income
Portfolio Managers/Research Analysts
Macro View
Market Analysis
Portfolio
Management
In-depth
research
Wider
BlackRock
Highly experienced, rigorous approach, global reach
Credit Risk Management
Pankaj Sharma (20)
Head - Risk Management and
Business Development
Risk and Quantitative Analysis
Years in brackets ( ) is years of investment or investment-related experience
Jigna Anandpara
(6)
Manager
Interaction with BlackRock PMs/Analysts Risk & Quantitative Analysis professionals
Nikhil Agarwal (5)
Manager
Arka Kundu
(3)
Manager
Aparna Karnik
(10)
Vice President
18. Disclaimers
Statutory Details: DSP BlackRock Mutual Fund was set up as a trust and the settlers/sponsors are DSP ADIKO Holdings Pvt. Ltd & DSP HMK Holdings Pvt. Ltd. (collectively) and
BlackRock Inc. (Combined liability restricted to Rs. 1 lakh). Trustee: DSP BlackRock Trustee Company Pvt. Ltd. Investment Manager: DSP BlackRock Investment Managers Private
Limited. Risk Factors: Mutual funds, like securities investments, are subject to market and other risks and there can be no assurance that the Schemeâs objectives will be
achieved. As with any investment in securities, the NAV of Units issued under the Scheme can go up or down depending on the factors and forces affecting capital
markets. Past performance of the sponsor/AMC/mutual fund does not indicate the future performance of the Scheme. Investors in the Schemes are not being offered a
guaranteed or assured rate of return. Each Scheme is required to have (i) minimum 20 investors and (ii) no single investor holding>25% of corpus. If the aforesaid point (i) is not
fulfilled within the prescribed time, the Scheme concerned will be wound up and in case of breach of the aforesaid point (ii) at the end of the prescribed period, the investor's holding in
excess of 25% of the corpus will be redeemed as per SEBI guidelines. The name of the Schemes do not in any manner indicate the quality of the Schemes, its future
prospects or returns.
Investors are advised to consult their own legal, tax and financial advisors to determine possible tax, legal and other financial implication or consequence of subscribing to the units of
DSP BlackRock Mutual Fund.
For scheme specific risk factors and more details, please read the Scheme Information Document, Statement of Additional Information and Key Information
Memorandum of respective Scheme available on ISC of AMC and also available on www.dspblackrock.com.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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FOR PROFESSIONAL INTERMEDIARIES ONLY