The net assets of the Scheme(s) will be invested primarily in fixed income securities and balance in equity and equity related instruments.
The Scheme(s) target positive returns over medium time frame and aims to reduce the chances and extent of a capital depreciation over medium term holding period for the unit holder. The Scheme(s) aims to achieve this by adopting the following investment strategy:
- Invest around 85% of the net assets of the Scheme(s) in fixed income securities of roughly one year maturity and adopt a predominantly buy and hold strategy. This will mean that over medium term irrespective of the interest rate movements, the Scheme(s) will earn returns that are nearly equal to the underlying yield on the bonds.
- Invest the balance nearly 15% of the net assets of the Scheme(s) in equities where the dividend yields are moderate to high. The investment focus will be on dividend yield stocks.
Both a) and b) combined together represent two sources of yield on the entire portfolio. These two yields combined together are expected to reduce the chances and extent of a capital loss.
In order to implement the investment approach effectively, it would be important to periodically meet the management face to face. This would provide an understanding of their broad vision and commitment to the long-term business objectives. These meetings would also be useful in assessing key determinants of management quality such as orientation to minority shareholders, ability to cope with adversity and approach to allocating surplus cash flows. Discussions with management would also enable benchmarking actual performance against stated commitments.
Pursuant to the SEBI Regulations, the Scheme shall not make any investment in :
- Any unlisted security of an associate or group company of the Sponsors; or
- Any security issued by way of private placement by an associate or group company of the Sponsors; or
- The listed securities of group companies of the Sponsors which is in excess of 25% of the net assets.
The Scheme may invest in other schemes managed by the AMC or in the schemes of any other mutual funds, provided it is in conformity with the investment objectives of the Scheme and in terms of the prevailing SEBI Regulations. As per the SEBI Regulations, no investment management fees will be charged for such investments and the aggregate inter scheme investment made by all the schemes of HDFC Mutual Fund or in the schemes of other mutual funds shall not exceed 5% of the net asset value of the HDFC Mutual Fund.
- Debt Investments :
Debt securities (in the form of non-convertible debentures, bonds, secured premium notes, zero interest bonds, deep discount bonds, floating rate bond / notes, securitised debt, pass through certificates, asset backed securities, mortgage backed securities and any other domestic fixed income securities including structured obligations etc.) include, but are not limited to :
- Debt obligations of the Government of India, State and local Governments, Government Agencies and statutory bodies (which may or may not carry a state / central government guarantee),
- Securities that have been guaranteed by Government of India and State Governments,
- Securities issued by Corporate Entities (Public / Private sector undertakings),
- Securities issued by Public / Private sector banks and development financial institutions.
- Money Market Instruments Include
- Commercial papers
- Commercial bills
- Treasury bills
- Government securities having an unexpired maturity upto one year
- Call or notice money
- Certificate of deposit
- Usance bills
- Permitted securities under a repo / reverse repo agreement
- Any other like instruments as may be permitted by RBI / SEBI from time to time
Investment in debt securities will usually be in instruments which have been assessed as "high investment grade" by at least one credit rating agency authorised to carry out such activity under the applicable regulations. Pursuant to SEBI Circular No. MFD/ CIR/9/120/2000 dated November 24, 2000, the AMC may constitute committee(s) to approve proposals for investments in unrated debt instruments. The AMC Board and the Trustee shall approve the detailed parameters for such investments. The details of such investments would be communicated by the AMC to the Trustee in their periodical reports. It would also be clearly mentioned in the reports, how the parameters have been complied with. However, in case any unrated debt security does not fall under the parameters, the prior approval of Board of AMC and Trustee shall be sought. Investment in debt instruments shall generally have a low risk profile and those in money market instruments shall have an even lower risk profile. The maturity profile of debt instruments will be selected in accordance with the AMC's view regarding current market conditions, interest rate outlook and the stability of ratings.
Investments in Debt securities and Money Market Instruments will be as per the limits specified in the asset allocation table(s) of respective Schemes, subject to permissible limits laid under SEBI (MF) Regulations.
Investments in both equity and debt will be made through secondary market purchases, initial public offers, other public offers, placements and right offers (including renunciation). The securities could be listed, unlisted, privately placed, secured / unsecured, rated / unrated of any maturity.
Investments made from the net assets of the Scheme would be in accordance with the investment objective of the Scheme and the provisions of the SEBI Regulations. The AMC will strive to achieve the investment objective by way of a judicious portfolio mix comprising of fixed income securities and equity/equity related instruments. Every investment opportunity in fixed income securities would be assessed with regard to credit risk, interest rate risk and liquidity risk.
A detailed credit evaluation of each investment opportunity will be undertaken. The AMC will utilise ratings of recognised rating agencies as an input in the decision making process. Investments in bonds and debentures will usually be in instruments that have been assigned high investment grade ratings by a recognised rating agency. In line with SEBI Circular No. MFD/CIR/9/120/2000 dated November 24, 2000, the AMC may constitute committee(s) to approve proposals for investments in unrated instruments. The AMC Board and the Trustee shall approve the detailed parameters for such investments. The details of such investments would be communicated by the AMC to the Trustee in their periodical reports. It would also be clearly mentioned in the reports, how the parameters have been complied with. However, in case any security does not fall under the parameters, the prior approval of Board of AMC and Trustee shall be sought.
Interest Rate Risk
An interest rate scenario analysis would be performed on an on-going basis, considering the impact of the developments on the macro-economic front and the demand and supply of funds. Based on the above analysis, the AMC would manage the investments of the Scheme on a dynamic basis to exploit emerging opportunities in the investment universe and manage risks at all points in time.
The AMC will attempt to reduce liquidity risk by investing in securities that would result in a staggered maturity profile of the portfolio, investment in structured securities that provide easy liquidity and securities that have reasonable secondary market activity. In the event of a requirement to liquidate all or a substantial part of these investments in a very short duration of time, the AMC may not be able to realize the full value of these securities to an adverse impact on the Net Asset Value of the Scheme.