If you are looking for short-term opportunities in the beaten-down debt market, which resulted in yields across debt instruments moving northward, then HDFC FMP 371D July 13 (1) can be a good option at this point.
Here’s why you can benefit from the timely launch of this fund:
– The fund seeks to invest 95-100% in certificates of deposits (CD) with high rating. 1-year CD rates closed at 10.28% on July 16, when the debt markets plummeted. To put that it perspective, it was 8.32% just a day before the fall (July 15). Closing rates as of Wednesday (July 17) was 10.18%. Of course, there is no guarantee that the fund will lock into these rates.
But if the fund manages to invest in CDs over the course of next week, after the FMP closes, it is likely to get instruments at good yields close to the above levels. That would make for attractive rates when compared with what a retail fixed deposit from bank fetches currently.
– While the debt market is likely to remain volatile over the course of the next few months, the instruments in an FMP are held to maturity. That means they hardly carry any interest rate risk, the way open-ended debt funds do. At the end of the tenure, the underlying instruments provide the coupon income.
– Given that it is a 371-day FMP, this will fetch indexation benefits as well.
But you will do well to make note of the following before opting for the FMP:
– You are willing to lock money for a year (FMPs are not liquid like open-end debt fund)
– You are willing to take marginally higher risks than bank deposits
– You have a requirement for the money at the end of the year or think you can redeploy them in other avenues after a year. This point is noteworthy, as a year later you may actually face a reinvestment risk. In other words, you may have to settle for much lower rates in the debt space than you would get in this fund. Hence if you are building a portfolio of long-term wealth, this may not be the best of options.
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Dear Vidya ji,
Thanks for providing avenues for ewarning higher interest.
However, i have a doubt on the line mentioend, “a year later you may actually face a reinvestment risk”.
That meaning, after 371 days, the Fund will be automatically redeemded or we have to sell it?
If not, what if i want to hold the fund even after 371 days?, can i?
Thanks for your answer.
-Sunil.
Hello Sunil, FMPS do not have a life beyond the maturity epriod. Hence after 371 days it will automatically be redeemed. That is why we mentioned there is a reinvestment risk as the then prevailing rates you get into, after this maturity – whether in debt funds or new FMPs may not be as high. Tks, Vidya
Thanks Vidya,
Though the point you mentioned is valid, for any goal of 1 year this wil be an apt one.
I understand the remaining risks and implications.
Thanks for the clarification.
Dear Vidya ji,
Thanks for providing avenues for ewarning higher interest.
However, i have a doubt on the line mentioend, “a year later you may actually face a reinvestment risk”.
That meaning, after 371 days, the Fund will be automatically redeemded or we have to sell it?
If not, what if i want to hold the fund even after 371 days?, can i?
Thanks for your answer.
-Sunil.
Hello Sunil, FMPS do not have a life beyond the maturity epriod. Hence after 371 days it will automatically be redeemed. That is why we mentioned there is a reinvestment risk as the then prevailing rates you get into, after this maturity – whether in debt funds or new FMPs may not be as high. Tks, Vidya
Thanks Vidya,
Though the point you mentioned is valid, for any goal of 1 year this wil be an apt one.
I understand the remaining risks and implications.
Thanks for the clarification.
Mam,
I have another confusion, related to the actual date of their investment, if it were the day Debt markets fell, Yes we are looking at 10+ rates, but how can we make sure?
Is it mentioned anywhere as in when they will be buying into the 1 Year CD’s?? or it will happen in staggered manner?.
What are the chances that they even had missed that day investment???
Thanks in advance?,
Sunil
Hello Sunil,
Since the fund will be launched only after collection (after the NFO), they clearly could not have invested when markets fell. But that does not mean CD rates will fall drastically in a week.The rates held above 10% until last week. That the fund will invest 95-100% in CDs is mentioned in the Scheme Information document. tks, vidya
On wednesday rates went up overnight by 2% when RBI announced increase in rate of MSF (from 8.25 to 10.25) . Now after 5 days it is at 9 %, so return from FMP as of today assuming fund house manages to get papers having yield 9% then retun will be 9 % ?
Hello Deepak, Apologies for the delayed response. 1 year CD rates closed 9.5% yesterday. You may be glad to know that CD rates are set to go up again with further tightening that happened late Tuesday. tks, Vidya
Mam,
I have another confusion, related to the actual date of their investment, if it were the day Debt markets fell, Yes we are looking at 10+ rates, but how can we make sure?
Is it mentioned anywhere as in when they will be buying into the 1 Year CD’s?? or it will happen in staggered manner?.
What are the chances that they even had missed that day investment???
Thanks in advance?,
Sunil
Hello Sunil,
Since the fund will be launched only after collection (after the NFO), they clearly could not have invested when markets fell. But that does not mean CD rates will fall drastically in a week.The rates held above 10% until last week. That the fund will invest 95-100% in CDs is mentioned in the Scheme Information document. tks, vidya
If fund house manages to invest money in papers having yield of 10.18 % then we will get return of 10.18% ?. Means If I invest 1 lac then maturity amount will be near to 1 lac 10 thousand ?. In short return will be above 10 % ?
hello Deepak, Not all instruments will come with that rate (it is an average and it was as of Wednesday) as the funds will buy different CDs. But yes, roughly, yields can be expected to be around that level if instruments are bought by the fund soon after it collects money. Tks, vidya
On wednesday rates went up overnight by 2% when RBI announced increase in rate of MSF (from 8.25 to 10.25) . Now after 5 days it is at 9 %, so return from FMP as of today assuming fund house manages to get papers having yield 9% then retun will be 9 % ?
Hello Deepak, Apologies for the delayed response. 1 year CD rates closed 9.5% yesterday. You may be glad to know that CD rates are set to go up again with further tightening that happened late Tuesday. tks, Vidya
Dear Vidya,
I have purchased HSDC FMP throughFunds India, it was under processing from last 2 days (Since the closure is 23rd July).
However, it is not shon in my portfolio today, will it be shown elsewhere in Funds India, even i couldn’t find the amount under the summary.
Please throw some light on this.
Also, How can we know in what CD rates has HDFC locked it’s money??? since the Offer is closed.
Thanks,
Sunil
Hello Sunil,
Only after allotment will the FMP be shown in your portfolio (in the MF section). Since it is an NFO it will take a while for fund hosue to complete allotment. As soon as this is done, it will be rflected in FundsIndia account.
I will not have access to customer support related queries. In future, Kindly use the customer support contact in your account to ask them details about your transaction.
Also, portfolio details of FMPS will be disclosed in the portfolio section of the fund hosue (http://www.hdfcfund.com/Downloads/OtherDownload_Table.aspx?ReportID=ADBBC91C-2A8D-4DD7-AB19-88211192FD39) every month. For this FMP, it will probably either come in August mid (for July portfolio, in case portfolio is already formed by July end) or September mid(for Aug portfolio).
Tks
Thanks a lot Vidya.
I will surely follow the support route from next time.
Thanks,
Sunil.
Also, could you please let me know where this information on various tenure CD’s RATES can be found?
Thanks,
Sunil.
CD rates and benchmarks are mostly available only through paid database sources. The RBI puts them out weekly but is is at least a couple of weeks old and does not have the tenure break-up: http://www.rbi.org.in/scripts/WSSViewDetail.aspx?TYPE=Section&PARAM1=13
Dear Vidya,
I have purchased HSDC FMP throughFunds India, it was under processing from last 2 days (Since the closure is 23rd July).
However, it is not shon in my portfolio today, will it be shown elsewhere in Funds India, even i couldn’t find the amount under the summary.
Please throw some light on this.
Also, How can we know in what CD rates has HDFC locked it’s money??? since the Offer is closed.
Thanks,
Sunil
Hello Sunil,
Only after allotment will the FMP be shown in your portfolio (in the MF section). Since it is an NFO it will take a while for fund hosue to complete allotment. As soon as this is done, it will be rflected in FundsIndia account.
I will not have access to customer support related queries. In future, Kindly use the customer support contact in your account to ask them details about your transaction.
Also, portfolio details of FMPS will be disclosed in the portfolio section of the fund hosue (http://www.hdfcfund.com/Downloads/OtherDownload_Table.aspx?ReportID=ADBBC91C-2A8D-4DD7-AB19-88211192FD39) every month. For this FMP, it will probably either come in August mid (for July portfolio, in case portfolio is already formed by July end) or September mid(for Aug portfolio).
Tks
Thanks a lot Vidya.
I will surely follow the support route from next time.
Thanks,
Sunil.
Also, could you please let me know where this information on various tenure CD’s RATES can be found?
Thanks,
Sunil.
CD rates and benchmarks are mostly available only through paid database sources. The RBI puts them out weekly but is is at least a couple of weeks old and does not have the tenure break-up: http://www.rbi.org.in/scripts/WSSViewDetail.aspx?TYPE=Section&PARAM1=13
I have purchased a 3 year FMP from HDFC fund house July series. When I checked my portfolio, it is showing negative return (although less than 1%)! How is it (negative return) possible in case of FMP?
Regards.
Hello sir, All debt funds whether FMPs or not will have to show their NAv at market price. That means, market fluctuations will def. be reflected in the NAV. Hence, you may see negative returns if market movement is unfavourable. The good part about FMP is that the losses are more like marked to market. When the instruments in the portfolio mature (they are all held to maturity) you will get the entire accrual (interest income) on maturity. Hence, you should not worry much about the price fluctuations. Thanks
I have purchased a 3 year FMP from HDFC fund house July series. When I checked my portfolio, it is showing negative return (although less than 1%)! How is it (negative return) possible in case of FMP?
Regards.
Hello sir, All debt funds whether FMPs or not will have to show their NAv at market price. That means, market fluctuations will def. be reflected in the NAV. Hence, you may see negative returns if market movement is unfavourable. The good part about FMP is that the losses are more like marked to market. When the instruments in the portfolio mature (they are all held to maturity) you will get the entire accrual (interest income) on maturity. Hence, you should not worry much about the price fluctuations. Thanks
If fund house manages to invest money in papers having yield of 10.18 % then we will get return of 10.18% ?. Means If I invest 1 lac then maturity amount will be near to 1 lac 10 thousand ?. In short return will be above 10 % ?
hello Deepak, Not all instruments will come with that rate (it is an average and it was as of Wednesday) as the funds will buy different CDs. But yes, roughly, yields can be expected to be around that level if instruments are bought by the fund soon after it collects money. Tks, vidya