Outperformance gathers pace in recent times

Launched in June 2010, HDFC Short Term Opportunities Fund features in the debt short funds category of CRISIL Mutual Fund Ranking. The fund has been constantly ranked in the top 30 percentile (CRISIL Fund Rank 1 or 2) in the four quarters ended December 2017. Its month-end assets under management (AUM) more than tripled from ~29.38 billion in January 2015 to ~94.90 billion in December 2017.

Anil Bamboli, who has over 23 years' experience, has been managing the fund since its launch in June 2010. The fund's investment objective is to generate regular income through investments in debt or money market instruments and government securities (Gsecs) with maturity not exceeding 36 months.

Superior performance

The fund has consistently outperformed its benchmark (CRISIL Short Term Bond Fund Index) and peers (schemes defined under the debt short funds category of CRISIL Mutual Fund Ranking December 2017) over short and long periods. The last one year and six months were especially favourable for the fund as it was able to gain significant margin over the benchmark and its peers.

A sum of ~1,000 invested in the fund since inception would have grown to ~1,896 (8.73 per cent CAGR) on February 12, 2018 compared with ~1,850 (8.38 per cent) for the peer group and ~1,827 (8.20 per cent) for the benchmark.

Investment through the systematic investment plan (SIP) route, which involves fixed investments at regular intervals in a mutual fund, is an alternative for investors who wish to opt for a disciplined approach to financial planning. A monthly SIP of ~1,000 over seven years in the fund (an investment of ~84,000) would have grown to around ~113,149, earning 8.48 per cent per annum. A similar investment in the benchmark would have grown to around ~112,489 at 8.32 per cent.

Duration management

The fund's modified duration varied in a narrow range of 1.24 to 1.61 years in three years, averaging 1.41 years. It hovered around 1.40 years in the past seven months, during which the corresponding 1-2 years' Gsec yield increased by 46 bps. A lower modified duration than peers (averaging 2.14 years) during the same period placed the fund at an advantage.

Portfolio analysis

The last seven months witnessed a consistent rise in bond yields, making G-secs less lucrative for investments. This period was marked with a slight shift in corpus of the fund from G-secs to corporate debt. The fund's exposure to G-sec was 3.46 per cent in December 2017 compared with its peers' 12.54 per cent.

The fund manager has been cautious on the credit risk front as well - the majority of corporate debt investments have been made in 'AAA and A1+' securities (71.67 per cent of the fund's portfolio in the last three years). Investments have not ventured below the 'AA category and A1' category securities in the three years, except a small one-off investment.

The funds' higher returns than those of peers have been the result of lower modified duration amidst the recent rise in interest rates.

CRISIL Research