Here is why FundsIndia recommends HDFC Short Term Debt

A reasonably large-sized fund:

The fund maintains a reasonable AUM size of around Rs 8,974 crore.

Positioned for the short term (2-3 years): The fund is suitable for investors looking to hold for a minimum of 2-3 years timeline with high credit quality and low volatility in returns.

With portfolio yields comfortably above inflation: The fund currently runs a YTM of 7.0 percent, which is a representation of the aggregate interest rate at which the fund lends to different companies (or the government). The Expense Ratio of the fund is the lowest in its category at 0.4 percent, compared to the category average of 1.1 percent.

Prioritising safety and high credit quality: The fund has high credit quality with allocation to highest rated papers (AAA and Equivalent) at 92 percent. The remaining 8 percent has been invested in companies with rating AA and below.

The list of non-AAA instruments that the fund has exposure to is given below.

The fact is that – most of the non-AAA rated exposure of the fund is owned either by the government or by large and well-established groups such as Tata, Aditya Birla Group and Vedanta – is a reflection of the high credit quality focus of the fund.

The top 10 investments of the fund can be seen from the table below. From a concentration point of view, the risk is well managed as all exposures above 5% are either into PSUs promoted by the government or strong groups such as HDFC.

The fund usually manages its modified duration between 1 to 3 years to take advantage of interest rate movements.

Average maturity – 2.7 years

Modified duration – 2.1 years

The fund despite taking lower risk has outperformed its peers consistently on a three-year rolling returns basis.

As seen above the fund’s NAV movement has been stable with low volatility – reflecting the high credit quality and controlled duration.

HDFC AMC is one of the largest fixed-income investment managers in India and has a long proven track record of performance in the high quality, low duration space.

The presence of a stable fund management team with long-standing fund manager Anil Bamboli (managing the fund since inception for the last 9 years) strengthens our conviction of the fund’s future prospects.

HDFC Short term fund can be considered by investors looking for 'returns above FD' with a minimum time frame of 2-3 years.

We like the fund for its large size, high credit quality, diversified portfolio, consistent performance track record with low risk and experienced fund management team.