Update on Debt Funds of Principal Mutual Fund
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Update on Debt Funds of Principal Mutual Fund Principal Cash Management Fund, Principal Ultra Short Term Fund, Principal Low Duration Fund and Principal Short Term Debt Fund Key Highlights The second wave of COVID 19 Pandemic has affected 10 key States including Maharashtra and Gujarat since April. Lockdowns and movement restrictions are again being implemented across the country albeit not in so severe a manner as last year. While Vaccination rollout is also underway, given the vast population and supply/logistic issues, inoculation of a significant proportion of the population is expected to take time. These factors will weigh on the nascent recovery of last six months. In its RBI MPC Review meeting held on 7th April, RBI continues to keep an accommodative stance and key rates unchanges as widely expected. In a positive push to market, RBI introduced GSaP 1.0, a more structured manner of doing Open market purchases to facilitate “orderly movement” of yields. This brought down yields post MPC Meet However subsequent two primary gsec auctions continues to show market unwillingness to buy near levels where RBI finds comfortable and thus we have seen devolvement as well as cancellation in first and second auction respectively and volatility in yields Concerns on inflationary pressures is also weighing on market with the March WPI recording 7.4% and CPI recording 5.52%. The ten yr gilt benchmark which touched a low of 6% in April is now trading around 6.08% (19th April). We expect Banking System liquidity to remain comfortable in the range of Rs 5 to 6.5 lakh crores for the month of April. Short term CD and CP rates and Overnight rates may remain stable and low given the ample banking system liquidity. We expect gilt yields and corporate bond yields to remain under pressure given the rise in global bond yields and supply pressure domestically. However any sharp rise in yields may get tempered with RBI actions including gilt purchases. The debt funds of Principal Mutual Fund are focused on 3 key aspects of the portfolio – safety, liquidity and quality. The portfolios of our debt funds have exposures to papers with a long term rating of AA and higher and short term rating of A1+/Sovereign with adequate liquid assets We advise investors to maintain a balanced asset allocation within debt funds with short term debt funds being the preferred category.
The Market Environment The outbreak of the COVID19 pandemic and the subsequent countrywide lockdown, is expected to have a deep and widespread impact on the Indian economy. GDP data released for the 3rd quarter of FY2020-21 came at 0.4% yoy reflecting recovery as lockdown measures eased and cases went down. However, the resurgence of a second wave of infected cases in April, could potentially impact the economic recovery and lead to lower than expected GDP growth in FY 22. Both headline and core inflation remain elevated particularly as high commodity prices, logistics pressures and continuing food inflation pressures. The revised Fiscal Deficit Estimate for FY21 is pegged at 9.5% higher than the 7.5 to 8.5% estimated by market participants. The Fiscal Deficit estimate for FY 2022 at 6.8% is also higher than market estimates. The projected increase in tax revenues for FY 22 from the revised estimates look reasonable provided we are on the path of full economic recovery. To that extent we may not see large slippages in tax revenues or fiscal deficit from this estimate. The FY 2022 Net borrowing for gsecs at Rs 9.25 lakh cr and gross at Rs 12.06 lakh cr is substantial and RBI support will be required to get this through. RBI has a difficult task of being mindful of the inflationary pressures while at the same time supporting growth which seems under threat from the second wave. We believe a strong investment philosophy and a robust investment management process are essential to build and manage a portfolio. Principal Mutual Fund (Principal MF) has a disciplined investment approach that takes acceptable risks, whilst attempting to minimize volatility in the portfolio. We follow stringent risk policies to optimize the risk & return proposition for investors. We focus on the three pillars of safety, liquidity and quality in our debt portfolios. We are currently running portfolios that lay equal emphasis on each of the abovementioned critical pillars. Our debt portfolios are mostly invested in companies with a high credit rating. We have sufficient liquidity in our portfolios through our cash and equivalent holdings as well as liquid assets like TREPS, T-Bills, gilts, etc.
1. Credit Profile of The Schemes (As on March 31, 2021)
While the credit environment remains fragile, borrowing costs and spreads have declined from the
highs seen in March to May of 2020 for lower rated papers. The portfolios of the abovementioned 4
funds are primarily invested in papers with a long term rating of AA+ and higher and short term
rating of A1+/Sovereign.
BONDS & NCD Cash Certificate of Deposits Commercial Paper Sovereign Treasury Bills
1.36
7.05 1.24 1.28
7.59
22.01 12.13
9.88 35.66
15.73 18.26
8.85
10.40
17.45
7.47
3.10
78.65
55.49
35.43 44.69
6.28
Principal Cash Principal Ultra Short Princpal Low Principal Short Term
Management Fund Term Fund Duration Fund Debt Fund
Source: Internal Analysis2.Maturity Profile of select debt and liquid funds (As on March 31, 2021) The maturity profile of the portfolios has also been structured in a manner to ensure liquidity and safety along with a laddering of the portfolio ensuring additional liquidity. This has been done within the mandate of each of the funds. Scheme Name < 1M
4. Current Issuers our portfolios (As on March 31, 2021)
As mentioned earlier, the portfolios are investing in issuers with a high credit quality. The list of non
government issuers in our portfolio is as follows:
Principal
Principal Cash Principal Principal
Low
Issuer Type Management Ultra Short Short Term
Duration
Fund Term Fund Debt Fund
Fund
Axis Bank Ltd Banks
Bajaj Finance Ltd Non PSU
Bharat Petroleum Corporation Ltd PSU Corporate
Cholamandalam Investment
Non PSU
& Finance Co.Ltd
Godrej Industries Ltd Non PSU
HDFC Bank Ltd Banks
Hindustan Petroleum Corp Limited PSU Corporate
Housing Development Finance
Non PSU
Corporation Limited
ICICI Bank Ltd Banks
Indian Oil Corporation Limited PSU Corporate
Indian Railway Finance
PSU Corporate
Corporation Limited
Indusind Bank Limited Banks
L&T Finance Limited Non PSU
LIC Housing Finance Ltd Non PSU
National Bank For Agriculture
PSU Corporate
And Rural Developm
National Housing Bank PSU Corporate
Ntpc Limited PSU Corporate
Power Finance Corporation Ltd PSU Corporate
Power Grid Corporation Of India Ltd PSU Corporate
REC Limited PSU Corporate
Reliance Industries Ltd Non PSU
Small Industries Development
PSU Corporate
Bank Of India
The Ramco Cements Ltd Non PSU
Ultratech Cement Ltd Non PSU
Source: Internal Analysis
5. Portfolio Details
Portfolio Details as on 31st March, 2021
Gross Yield
Average Modified
Fund Name to Maturity
Maturity Duration
%
Principal Cash Management Fund 28 Days 3.28 27 Days
Principal Ultra Short Term Fund 137 Days 3.68 131 Days
Principal Low Duration Fund 244 Days 4.00 225 Days
Principal Short Term Debt Fund 3.03 Yrs 5.09 2.54 Yrs
Source: Internal AnalysisFixed Income: Investment Process
Rates: Access to best Monthly Asset Limit monitoring /
ofInternal / External & Allocation Matrix compliance
Proprietary
Benchmark & Peer Monthly Review of
Credit: Exhaustive Group Analysis Risk Areas
top down process
Daily Performance Global Supervision of
combined with
Attribution Risk Processes
"bottom up" issuer
selection Portfolio Laddering
Research Fund Risk
Management Management
Highlights of the Credit Research Process
Board approved Internal Credit Risk Assessment Policy
“Credit Tracker” list of approved Credits: LT & ST: Bottom Up Approach
Inclusion and sustainability of a credit in the record/list is determined by the
established credit process, which includes two broad areas :
Approval for new credits (through credit note)
Review and monitoring of existing credits
“Early in- Early Exit” Identify new promising credits early on, take shorter
exposures
Access to in house Equity Team expertise on sector/stock coverage where we
take exposureTop 10 Holdings of the Schemes (As on March 31, 2021)
Principal Cash Management Fund
% to
Name of Issuer Rating
NAV
91 DAY T-BILL 29-Apr-2021 Sovereign 16.43
7.94% Government of India 24-May-2021 Sovereign 15.73
6.95% LIC Housing Finance Ltd. 04-Jun-2021 CARE AAA 6.28
Bharat Petroleum Corporation Ltd. 16-Apr-2021 CRISIL A1+ 6.24
Housing Development Finance Corporation Ltd. 20-May-2021 CRISIL A1+ 6.22
Godrej Industries Ltd. 22-Apr-2021 CRISIL A1+ 4.99
182 DAY T-BILL 15-Apr-2021 Sovereign 3.12
IndusInd Bank Ltd. 15-Jun-2021 CRISIL A1+ 3.10
91 DAY T-BILL 06-May-2021 Sovereign 2.46
Principal Ultra Short Term Fund
% to
Name of Issuer Rating
NAV
Bharat Petroleum Corporation Ltd. 16-Apr-2021 CRISIL A1+ 7.65
8.36% Bajaj Finance Ltd. 10-Aug-2021 CARE AAA 6.99
IndusInd Bank Ltd. 28-Feb-2022 CRISIL A1+ 5.90
8.50% Small Industries Development Bank of India 21-Jun-2021 CARE AAA 5.42
HDB Financial Services Ltd. 08-Jun-2021 CRISIL AAA 4.91
Axis Bank Ltd. 22-Oct-2021 CRISIL A1+ 4.50
8.30% Reliance Industries Ltd. 08-Mar-2022 CRISIL AAA 3.97
8.79% Government of India 08-Nov-2021 Sovereign 3.95
8.62% State Government of Gujarat 07-Sep-2021 Sovereign 3.91
8.39% National Bank for Agriculture and Rural Development 19-Jul-2021 CRISIL AAA 3.88
Principal Low Duration Fund
% to
Name of Issuer Rating
NAV
HDB Financial Services Ltd. 08-Jun-2021 CRISIL AAA 8.33
6.70% Indian Railway Finance Corporation Ltd. 24-Nov-2021 CRISIL AAA 7.94
6.70% National Bank for Agriculture and Rural
Development 11-Nov-2022 CRISIL AAA 6.70
6.99% REC Ltd. 31-Dec-2021 CRISIL AAA 6.64
6.99% Ultratech Cement Ltd. 24-Nov-2021 CRISIL AAA 6.62
8.00% Cholamandalam Investment & Finance Co. Ltd. 13-Aug-2021 IND AA+ 6.58
8.25% L&T Finance Ltd. 21-Jun-2021 IND AAA 6.56
7.06% Housing Development Finance Corporation Ltd. 13-Dec-2021 CRISIL AAA 5.31
Axis Bank Ltd. 22-Oct-2021 CRISIL A1+ 5.09
7.24% LIC Housing Finance Ltd. 23-Aug-2021 CRISIL AAA 4.61Principal Short Term Debt Fund
% to
Name of Issuer Rating
NAV
6.18% Government of India 04-Nov-2024 Sovereign 7.78
5.15% Government of India 09-Nov-2025 Sovereign 7.74
6.45% State Government of Maharashtra 14-Oct-2027 Sovereign 7.14
7.57% Ultratech Cement Ltd. 06-Aug-2021 CRISIL AAA 5.10
7.27% Government of India 08-Apr-2026 Sovereign 4.94
5.05% Indian Oil Corporation Ltd. 25-Nov-2022 CRISIL AAA 4.35
7.95% HDFC Bank Ltd. 21-Sep-2026 CRISIL AAA 3.86
7.60% ICICI Bank Ltd. 07-Oct-2023 [ICRA]AAA 3.80
7.05% National Housing Bank 18-Dec-2024 CRISIL AAA 3.79
7.99% Power Finance Corporation Ltd. 20-Dec-2022 CRISIL AAA 3.79
Source: Internal Analysis
Disclaimer:
The investment strategy stated above may change from time to time without any notice and shall
be in accordance with the strategy as mentioned in the Scheme Information Document of the
scheme. The views contained herein are not to be taken as an advice or recommendation to buy or
sell any investment or interest thereto. Diversification does not guarantee investment returns and
does not eliminate the risk of loss. They are considered to be reliable at the time of writing, may not
necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change
3. Liquidity
without reference of the Portfolios
or notification to you. It should be noted that the value of investments and the
income from them may fluctuate in accordance with market conditions and taxation agreements
and investors may not get back the full amount invested. Past performance may or may not be
sustained in future. The views and strategies described may not be suitable for all investors.
Furthermore, whilst it is the intention to achieve the investment objective of the investment
product(s), there can be no assurance that those objectives will be met. Investors are advised to
consult their Investment advisors for determining their risk appetite and Tax Advisor before taking
any investment decision.
The data/statistics/ comments are given to explain general market trends in the securities market,
it should not be construed as any research report/research recommendation.
Principal Cash Management Fund: Principal Low Duration Fund:
(An Open-ended Liquid Scheme) (An open ended low duration debt scheme investing in
instruments such that the Macaulay duration of the
portfolio is between 6 months and 12 months)
This product is suitable for investors who are
seeking~- This product is suitable for investors who are
Income over a short term investment horizon. seeking~-
Investment in Debt & Money Market Instruments, with Income over a short term investment horizon.
maturity not exceeding 91 days. Investors understand that their principal Investment in Debt & Money Market Instruments. Investors understand that their principal
will be at low to moderate risk will be at low to moderate risk
~ Investors should consult their financial advisors if in doubt about whether the ~ Investors should consult their financial advisors if in doubt about whether the
product is suitable for them. product is suitable for them.
Principal Short Term Debt Fund: Principal Ultra Short Term Fund:
(An open ended short term debt scheme investing in (An open ended ultra short term debt scheme investing in
instruments such that the Macaulay duration of the instruments such that the Macaulay duration of the
portfolio is between 1 year and 3 years) portfolio is between 3 months and 6 months)
This product is suitable for investors who are This product is suitable for investors who are
seeking~- seeking~-
Income over a medium term investment horizon. Income over a short term investment horizon
Investment in Debt & Money Market Instruments. Investors understand that their principal Investment in Debt & Money Market instruments. Investors understand that their principal
will be at moderate risk will be at low to moderate risk
~ Investors should consult their financial advisors if in doubt about whether the ~ Investors should consult their financial advisors if in doubt about whether the
product is suitable for them. product is suitable for them.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.You can also read
