FundsIndia Recommends: HDFC Short Term Debt

November 26, 2019 . Mutual Fund Research Desk

  • A high quality, short-duration, low-risk debt fund
  • Over 90% of investment in instruments with credit rating of AAA+ & Equivalent


  • Delivers reasonable returns with low-risk papers 


  • Investors looking for FD-plus returns
  • Willing to hold for 2-3 years or more

A reasonably large sized fund..

The fund maintains a reasonable AUM size around 8,974 crore.

Positioned for the short term (2-3 years)..

The fund is suitable for investors looking to hold for a minimum of 2-3 years timeline with high credit quality and low volatility in returns.

With portfolio yields comfortably above inflation..

The fund currently runs a YTM of 7.0%, which is a representation of the aggregate interest rate at which the fund lends to different companies (or the government). The Expense Ratio of the fund is the lowest in its category at 0.4%, compared to the category average of 1.1%.

Prioritizing safety and high credit quality..

The fund has high credit quality with allocation to highest rated papers (AAA & Equivalent) at 92%. The remaining 8% has been invested in companies with rating AA and below.

The list of non-AAA instruments that the fund has exposure to is given below.

The fact is that – most of the non-AAA rated exposure of the fund is owned either by the Government or by large and well-established groups such as Tata, Aditya Birla Group and Vedanta – is a reflection of the high credit quality focus of the fund.

Exposure to non-AAA Rated Instruments (as on 31-Oct-19)
AA+ & Equivalent CANFIN Homes Ltd. (subsidiary of Canara Bank) (0.4%)

Vedanta Ltd. (1.3%)
Hindalco Industries Ltd. (subsidiary of Aditya Birla Group) (0.5%)
Shriram City Union Finance (0.5%)

Below AA
Coastal Gujarat Power Ltd. (subsidiary of Tata Power) (2.5%)
Tata Motors Ltd. (1.1%)
Talwandi Sabo Power Ltd. (subsidiary of Vedanta Limited) (0.6%)
TMF Holdings Ltd. (subsidiary of Tata Motor) (0.6%)
Bank of Baroda (0.2%)
Hazaribagh Ranchi Expressway Ltd. (0.1%)

Adequately diversified..

The top 10 investments of the fund can be seen from the table below. From a concentration point of view, the risk is well managed as all exposures above 5% are either into PSUs promoted by the government or strong groups such as HDFC.

Exposure of Top 10 Instruments (as on 31-Oct-19)% of NAV
Power Finance Corporation Ltd.8.0
Housing Development Finance Corporation Ltd.6.9
Tata Capital Financial Services Ltd.4.8
Reliance Jio Infocomm Ltd.4.5
LIC Housing Finance Ltd.4.4
Reliance Industries Ltd.4.2
State Bank of India4.1
Housing & Urban Development Corporation Ltd.3.6

With controlled duration (1-3 years) to benefit from interest rate movement..

The fund usually manages its modified duration between 1 to 3 years to take advantage of interest rate movements 

  • Average Maturity – 2.7 years
  • Modified Duration – 2.1 years

Solid track record of consistent performance..

Returns as on Nov 22, 20191 Yr3 Yr5 Yr
HDFC Short Term Debt Fund10.4%7.6%8.3%
Category Average5.6%5.3%6.7%

The fund despite taking lower risk has outperformed its peers consistently on a 3-year rolling returns basis.

With lower risks and volatility..

As seen above the fund’s NAV movement has been stable with low volatility – reflecting the high credit quality and controlled duration.

Backed by an experienced fund management team and reputed fund house..

HDFC AMC is one of the largest fixed-income investment managers in India and has a long proven track record of performance in the high quality, low duration space.

The presence of a stable fund management team with long-standing fund manager Mr. Anil Bamboli (managing the fund since inception for the last 9 years) strengthens our conviction of the fund’s future prospects. 

Summing it up

HDFC Short term fund can be considered by investors looking for “returns above FD” with a minimum time frame of 2-3 years

We like the fund for its large size, high credit quality, diversified portfolio, consistent performance track record with low risk and experienced fund management team.

Note: Allocation & maturity is based on the current market conditions and is subject to changes depending on the fund manager’s view of the markets. The portfolio details are as on date Oct 31, 2019.



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