DSP Blackrock Ultra Short Term Fund

A debt oriented mutual fund scheme which will be investing a predominant portion of its assets in short term debt.

Summary

Type	An open-ended debt scheme	Benchmark Index	50% of CRISIL Composite CP Index + 50% of CRISIL Composite CD Index
Min. Investment: Minimum installment for Systematic Investment Plan (SIP):	Rs. 1,000/– and any amount thereafter Rs. 500/-	Plans: Options (under each plan):	Direct; and Regular   Growth (Option A) Daily Dividend (Option B) Reinvest Dividend Weekly Dividend (Option C) Payout Dividend Reinvest Dividend Monthly Dividend (Option D) Payout Dividend Reinvest Dividend Quarterly Dividend (Option E) Payout Dividend Reinvest Dividend
Face Value	Rs 10 per unit	Expense Ratio:	Upto 2.25%*
Entry Load	Not Applicable	Exit Load:	NIL*
Issue Opens	February 27, 2015	Issue Closes:	March 4, 2015

*Note: Switch of investment from the Regular Plan, where the transaction has been received with broker code to Direct Plan shall be subject to applicable exit load, if any. In such cases, after the switch, in case of subsequent redemption or switch-out to another scheme, no exit load would be levied. No exit load shall be levied In case of switch of investments from Direct Plan to Regular Plan.

*Direct Plan shall have a lower expense ratio to the extent of distribution expenses / commissions which is charged in the regular Plan  

Investment Objective*

The investment objective of the Scheme is to seek to generate returns commensurate with risk from portfolio constituted of money market securities and/or debt securities.

*Source: Scheme Information Document

 

Is this fund for you?

DSP Blackrock Ultra Short Term Fund (DBUSTF) is a fixed income fund that will invest majority of its assets in money market and debt instruments with shorter maturities. The maturities of these instruments will be less than or equal to one year. Tapping opportunities in the longer end, DBUSTF would also be investing a small portion in debt instruments with residual maturity of more than a year. DBUSTF proposes to invest in a portfolio of high quality debt and money market instruments to generate stable risk-adjusted returns with a low risk strategy.

The fund is suitable for risk averse investors who are looking to invest for a short timeframe from anywhere between 6 months to 1 year.

 

Portfolio Strategy

The Investment Manager will invest in those debt securities that are rated investment grade by credit rating agencies or in unrated debt securities, which the Investment Manager believes to be of equivalent quality. In-house research by the Investment Manager will emphasize on credit analysis, in order to determine credit risk.

The investment process follows a top down approach taking into account aspects like interest rate view, term structure of interest rates, systemic liquidity, RBI’s policy stance, inflationary expectations, Government borrowing program, fiscal deficit, global interest rates, currency movements, etc.

The Scheme will invest in debt and money market securities, which include, but are not limited to:
 

• Debt obligations of the Government of India, state and local governments, government agencies, statutory bodies, public sector undertakings, scheduled commercial banks, non-banking finance companies, development financial institutions, financial institutions, corporate entities.
• Money market securities include commercial papers, commercial bills, treasury bills, Government securities having an unexpired maturity up to one year, call or notice money, certificate of deposit, usance bills, Collateralized Borrowing and Lending Obligation (CBLO), repurchase agreement (repo), reverse repurchase agreement (rev-repo), Bills Rediscounting Scheme (BRDS) and any other like instruments as specified by the Reserve Bank of India from time to time
• Units of Mutual funds for cash and liquidity management. Any other instruments/securities as may be permitted by RBI/SEBI/such other Regulatory Authority from time to time.
   

Under normal circumstances the asset allocation pattern for the scheme will be as under:
 

Instruments	Allocation Range (%)		Risk Profile High/Medium/Low
	Minimum	Maximum
Money market securities and/or debt securities with residual maturity of less than or equal to 1 year	80	100	Low to Medium
Debt securities with residual maturity of greater than 1 year	0	20	Low to medium

* The weighted average maturity of the Scheme will be between 6 months and 1 year. The weighted average maturity will be reckoned on:
1) Maturity date for fixed rate securities
2) Interest reset date or re-pricing date for floating rate securities
The Scheme shall not invest in securitized debt, fixed income derivative instruments, foreign securities and repurchase and reverse repurchase agreements of corporate debt securities.
The Scheme will not engage in short selling of securities and securities lending and borrowing.
The cumulative gross exposure through Debt and Money Market securities will not exceed 100% of the net assets the Scheme.

(Source: Scheme Information Document)  

DBUSTF will benchmark its performance against 50% of CRISIL Composite CP Index + 50% of CRISIL Composite CD Index, based on the investment objective of investing predominantly in money market instruments.

 

Fund Manager Profile

Mr. Laukik Bagwe has over 14 years of experience in Fixed Income Market. He has been vice president of DSPBR IM since November 2007. He was previously the head of fixed income trading at Derivium Capital and trading and Manager of SLR & NON-SLR Broking at Birla Sunlife Securities Ltd. He holds a B.Com degree along with a PGDBA (Finance).

 

Fund Outlook

In times when the RBI has reduced policy rates consecutively this year and there are chances of policy rates being eased even further through the flexible inflation targeting approach which will be accommodative even from a growth perspective, the time of launch of this ultra-short term fund seems to have gone awry. In a rising interest rate scenario sort term funds tend to do better while in a reducing interest rate scenario the longer maturity papers tend to do well. This is purely on the inverse relationship between bond yields and bond prices.

As corporates have to set aside money to pay taxes at the end of this financial year, there would be a liquidity squeeze which would cause interest rates to rise in the near term. However it is likely that this squeeze in liquidity will be met by the central bank’s surprise decision to cut interest rates. Hence it is debatable whether interest rates would rise in the near term as expected previously and we can possibly expect a fall in interest rates commensurate with RBI’s monetary policy.

 

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