HDFC Short Term Debt Fund Direct Plan Normal Payout of Income Dis cum Cptl Wdrl Opt INF179KA1Q53

We have qualitatively reviewed this strategy and reaffirmed its Process and People ratings. The following text is from July 28, 2023.

A seasoned manager, consistent investment approach, stable team, and an investment strategy that the fixed-income team has plied successfully over the years make this fund a compelling offering. Hence, we assign an Above Average rating to both the People and Process Pillars.

The fund benefits from the presence of a seasoned manager in Anil Bamboli and his investment style, which focuses on keeping risks at bay. Bamboli is supported by a stable team composed of senior managers like Shobhit Mehrotra and Anupam Joshi. The fixed-income team is on the leaner side, though, and we believe there is a scope for expansion in it, particularly in the active duration space and credit research front. There is a lot riding on Bamboli and Mehrotra, and these additions, if made, would rationalise their responsibilities further and provide more depth and endurance to the team. However, internally the team is grooming a few of its members to take up fund management responsibilities going ahead, which is positive.

The fund is solid on most counts. The investment approach is reasonably simple, with an emphasis on safety and liquidity. The basic premise of the fund is to offer a true-label short-term fund to investors and optimize returns without exposing them to extensive credit or duration risk. Over the years, the fixed-income team at HDFC Mutual Fund has established itself in managing low duration and high credit-quality strategies. Hence, the manager is playing to his strength.

Bamboli primarily invests in high-quality papers issued by strong and stable private sector companies, public sector undertakings, and government securities. With safety being paramount, credit bets are taken selectively, and the exposure to sub-AAA rated segment is capped at 20% of the portfolio. This approach helped the fund to ride through the credit crises in the Indian fixed-income market more comfortably than some of its peers. The fund’s investment in Hazaribagh Ranchi Expressway Ltd (NHAI Annuity), a subsidiary of IL&FS, did default in 2019. However, the manager was able to exit this security in 2020 at a price higher than what was accounted for. The fund has not witnessed any other credit event besides this, which points toward a relatively strong security-selection process.

The strategy may lead the fund to lag its peers, who have the flexibility of going down the credit ladder when credit is the season’s flavour. Additionally, the category has also been evolving since 2020. Although the fund still boasts a noteworthy track record, how it stacks up going ahead as the category evolves needs to be reviewed over time. Notwithstanding these concerns, there are several positive traits that the fund exhibits, which makes it a worthy investment option from the short duration category.