What is your investment objective?
To provide investors with an opportunity to generate regular income through investments in a portfolio comprising of debt instruments which are rated not below investment grade by a credit rating agency and money market instruments. The Average maturity of the fund cannot exceed 3 years.
What is the ideal time frame which an investor should look at while investing in a short-term fund?
The scheme is ideally suited for investors with an investment horizon of more than 6 months up to 18 months.
What is your framework of taking a credit call? What kind of credit risk you don't take at all?
SBI Short Term Debt fund invests predominantly in highest rated money market instruments, Sovereign securities including SDL and AAA bonds. The scheme has always maintained a rating floor of AA-. Exposure to non-AAA bonds have been capped at 10%. All credit selections are based on internal credit research and in securities assigned specific limits by the credit research team and approved by the Investment committee.
In view of the recent fiasco in short term and liquid funds, what precautions have you taken to avoid a similar situation in your fund?
The recent incidents have been due to funds not maintaining duration discipline in funds such as Liquid funds, Ultra Short term funds and Short Term funds. Over the last year, in the backdrop of rally in bonds, liquid funds have tended to maintain higher mark to market exposure, Ultra Short term funds started to maintain higher duration (1.5 year to even 2.5 year) almost similar to short term funds and short term funds scaled up duration exposure similar to medium term funds (4- 6 years). There has also been an element of credit exposure in some of these categories, even as the negative impact has largely come from unconstrained duration exposures.
All our fixed income products have specific template restrictions that deal with the extent of credit and duration risk that can be taken in specific schemes. For e.g. the average maturity in short term fund is capped at 3 years and the same in Ultra short term is capped at 9 months. Similarly the credit exposures are also restricted specifically. These mandates have not been violated at any time, even in phases where markets remained buoyant expecting larger monetary easing. The adherence to internal templates is monitored independently by the Risk team and the same is reported to the Investment committee.
What will you attribute the consistent above average performance to?
The scheme has stayed consistent to the mandate restrictions at all times. At the same time, we have taken active duration calls within the mandate of the fund, consistent with our views on the direction of interest rates and market trends. The fund has always maintained allocation to superior credit ratings.