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BW Businessworld

Getting Through The Risk Test

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When Anil Bamboli switched from handling equities at a large state-run bank's mutual fund to the bank's treasury team, little did he know he would be a star performer there. Prod him on which is his favourite and the 40-year-old senior fund manager at HDFC Mutual Fund, whose Multiple Yield Plan 2005 tops in the Businessworld-Value Research study in the Hybrid: Debt Oriented Conservative category, simply says both are equally exciting and challenging.

Challenging it certainly was last year. With repo rates and inflation rising steadily, managing a fund with about 85 per cent of its portfolio in debt holdings (mainly triple-rated certificates of deposit, or CD, and commercial paper, or CP) at a time when treasury yields were high was a tough test. But rising treasury yields also mean falling prices (the two being inversely proportional), which is a boon for fund managers (you can buy at attractive prices).

Chirag Setalvad co-manages the fund. Bamboli manages 11 funds at HDFC MF (total assets worth Rs 18,247 crore; Rs 600 crore under Multiple Yield Plan 2005). Last year, while the benchmark Crisil MIP (monthly income plan) Blended Index gave 5.37 per cent returns, Bamboli's fund gave 9.71 per cent. In fact, it has beaten the index by a healthy margin since 2005. So, if you had invested Rs 10,000 in the fund in 2005, you would have Rs 53,197 in your hands at the end of March 2007, compared to the Rs 22,866 the index would have returned. Bamboli says the fund's philosophy is to not take risky positions and avoid interest-rate risk. Also, investments are restricted to 15 months, which means a large portion of the debt exposure is to debentures of LIC Housing Finance and HDFC along with top-rated CPs and CDs (about 59 per cent) of large public and private sector banks. A conservative approach also meant buying and holding on to debt instruments at the short end of the curve, thereby not taking too much of an interest-rate risk, he says.

In equity, the emphasis is on high dividend-yielding stocks. What helped is their belief in strong performance and a good choice of mid-caps — TTK Prestige (consumer durables), Carborundum Universal (metals), VST Industries (FMCG), etc. Bamboli believes awareness of debt funds needs to increase as debt continues to remain synonymous with fixed income since most retail investors choose bank fixed deposits.

At the end of March 2011, the portfolio's average maturity was 200 days, which was reduced to 155 days, signifying the need to remain focused on the short term. Debt concentration changed from about 89 per cent in debt instruments of nine financial companies at the end of March 2011 to 59 per cent in the top 10 debt holdings by February 2012. The rest was distributed evenly. Net assets grew from Rs 64 crore to Rs 600 crore during the period.

tanushree(dot)pillai(at)abp(dot)in

(This story was published in Businessworld Issue Dated 30-04-2012)