{"id":339,"date":"2019-05-21T09:49:51","date_gmt":"2019-05-21T09:49:51","guid":{"rendered":"http:\/\/blog.certifiedfinancialguardian.com\/?p=339"},"modified":"2019-05-21T10:08:41","modified_gmt":"2019-05-21T10:08:41","slug":"can-hsbc-overnight-fund-help-in-building-an-emergency-fund","status":"publish","type":"post","link":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/2019\/05\/21\/can-hsbc-overnight-fund-help-in-building-an-emergency-fund\/","title":{"rendered":"Can HSBC Overnight Fund Help In Building A Rainy Day Fund?"},"content":{"rendered":"\n

Due to recent downgrading episodes of several corporates like IL&FS and DHFL<\/a>, many liquid funds posted steep losses as they were having exposure to these companies. It made the investors aware that debt fund investment isn\u2019t completely risk-free. <\/p>\n\n\n\n

While liquid funds<\/a> were widely perceived to be a safe and better alternative to short-term deposits offered by banks, their popularity has waned in recent times.<\/p>\n\n\n\n

Plus, in March 2019, the regulator notified about valuation norms<\/a> of money market and debt securities. Owing to that, it has become difficult to bring a sizeable part of the portfolio to less than 30-day maturity considering the large asset size of the Liquid funds. Besides, the net asset value of Liquid Funds would reflect the actual return profile considering the impact of ultimate loss, as indicated by the fund house<\/a>.<\/p>\n\n\n\n

Investors have become more conservative and\nvying for options that are less risky. And the overnight fund is a plausible choice. <\/p>\n\n\n\n

Overnight fund<\/a> is a category of debt scheme emerged after the SEBI\u2019s recategorization norms<\/a>.<\/p>\n\n\n\n

It has the shortest\ninvestment duration of one day and provides better returns than bank FDs and\nare more liquid. The interest rate risk involved\ntherein is near zero. However, there can be a reinvestment risk, i.e. overnight\nfunds may not be able to reinvest their proceeds at the same rate of return,\nbut at least that doesn’t cause any capital erosion.<\/p>\n\n\n\n

On the risk-return spectrum, overnight funds are placed lower that carries the least amount of investment risk among fixed income funds<\/a>.<\/p>\n\n\n\n

Graph:\nIndicative Risk Return Matrix of Fixed Income Funds<\/em><\/strong><\/p>\n\n\n\n

\"\"<\/figure><\/div>\n\n\n\n

^^General strategy followed by the fund categories. The above list is not exhaustive and for illustration purpose only
\n* Typical duration\/maturity period of the investment securities where the fund invests
\n$Overnight Fund redemption \u2013the fund endeavours to make the pay-out within one business day on redemption.
\n1An open-ended debt scheme investing in instruments with Macaulay duration between 4 to 7 years
\n2An open-ended debt scheme investing in government securities across the maturity
\n3An open-ended short-term debt scheme investing in instruments with Macaulay duration between 1 year and 3 years
\n4An open-ended ultra-short-term debt scheme investing in instruments with Macaulay duration between 3 months and 6 months
\n5An open-ended low duration debt scheme investing in instruments with Macaulay duration between 6 months and 12 months\n<\/p>\n\n\n\n

(Source: HSBC Overnight Fund Product deck<\/a>)<\/p>\n\n\n\n

Hence, HSBC Mutual Fund<\/a> launched an open-ended debt scheme, HSBC Overnight Fund (HOF).\u00a0 It will invest predominantly in debt, money market instruments and cash & cash equivalents having a maturity of one business day. <\/p>\n\n\n\n

Thus, it is suitable for conservative investors<\/a> who want to park their surplus money for a time period of one month or less than a year, build an emergency fund and want to earn a reasonable return with high liquidity.<\/p>\n\n\n\n

Table 1:\u00a0NFO Details<\/em><\/strong><\/p>\n\n\n\n
\n Type<\/strong>\n <\/td>\n An open-ended debt scheme investing in overnight securities.\n <\/td>\n Category<\/strong>\n <\/td>\n Overnight Fund\n <\/td><\/tr>
\n Investment Objective<\/strong>\n <\/td>\n To offer reasonable returns commensurate with low risk and a high degree of liquidity through investments in overnight securities.
\nHowever, there is no assurance that the investment objective of the Scheme will be achieved.\n <\/td>\n<\/tr>
\n Min. Investment<\/strong>\n <\/td>\n Rs 5,000 and in multiples of Re 1 thereafter\n <\/td>\n Face Value<\/strong>\n <\/td>\n Rs 1,000 per unit\n <\/td><\/tr>
\n Plans <\/strong>\n <\/td>\n
    \n
  • Direct*<\/li>\n
  • Regular<\/li><\/ul>\n* Default option\n <\/td>
\n Options<\/strong>\n <\/td>\n
    \n
  • Growth*<\/li>\n
  • Dividend<\/li><\/ul> \n
      \n
    • Re-investment Facility<\/li>\n
    • Pay-out Facility<\/li><\/ul>\n *Default option<\/em>\n <\/td><\/tr>
\n Entry Load<\/strong>\n <\/td>\nNot Applicable\n <\/td>\n Exit Load<\/strong>\n <\/td>\n Nil\n \n <\/td><\/tr>
\n Fund Manager<\/strong>\n <\/td>\n Mr Kapil Punjabi\n <\/td>\n Benchmark Index<\/strong>\n <\/td>\n CRISIL Overnight Index\n <\/td><\/tr>
\n Issue Opens:<\/strong>\n <\/td>\n May 21, 2019\n <\/td>\n Issue Closes:<\/strong>\n <\/td>\n May 22, 2019\n <\/td><\/tr><\/tbody><\/table>\n\n\n\n

(Source: Scheme Information Document<\/a>)<\/p>\n\n\n\n

How will HSBC Overnight Fund allocate\nits assets?<\/strong><\/p>\n\n\n\n

Under normal circumstances, the scheme\u2019s\u00a0asset allocation<\/a>\u00a0pattern will be as under:<\/p>\n\n\n\n

Table\n2: H<\/em>OF\u2019s Asset Allocation<\/em><\/strong><\/p>\n\n\n\n
\n Instruments<\/strong>\n <\/td>\n Normal Allocation (% of Net Assets)<\/strong>\n <\/td>\n Risk\n Profile<\/strong>\n <\/td><\/tr>
\n Debt, Money Market instruments, Cash and Cash Equivalents (including Repo) with overnight maturity \/ maturing on or before next business day\n\n <\/td>\n Up to 100%\n <\/td>\nLow\n <\/td><\/tr><\/tbody><\/table>\n\n\n\n

If the Scheme decides to invest in securitised debt, it is the intention of the Investment Manager that such investments will not normally exceed 10% of the corpus of the Scheme. \nThe scheme will not invest in Derivatives, Foreign Securities, Credit Default Swaps, Securities Lending and Short Selling. \nThe investments under the Scheme would be in Triparty Repo, reverse repo, debt and money market instruments and cash and cash equivalents with overnight maturity \/ maturing on or before next business day. The Scheme may invest in Repo \/ Reverse Repo transactions in Corporate Debt Securities maturing overnight in accordance with guidelines issued by SEBI from time to time.\n <\/p>\n\n\n\n

(Source: Scheme Information Document<\/a>)<\/p>\n\n\n\n

What will be the Investment Strategy?<\/strong><\/p>\n\n\n\n

The aim of HSBC Overnight Fund is to offer\nreasonable returns commensurate with low risk and a high degree of liquidity.\nThe scheme will have low risk and offer a very high degree of liquidity as it\nwill invest only in overnight securities. <\/p>\n\n\n\n

Investments would be made normally in\novernight securities including Tri-party Repo \/ Reverse repos, debt instruments\nwith overnight maturity\/liquidity. <\/p>\n\n\n\n

Since investing requires disciplined risk\nmanagement, the AMC would incorporate adequate safeguards for controlling risks\nin the portfolio construction process.<\/p>\n\n\n\n

Since providing liquidity is of paramount\nimportance, the focus will be to ensure liquidity while seeking to maximise the\nyield. A mix of money market and debt instruments will be used to achieve this.\nThe Investment Team of the AMC will carry out rigorous in-depth credit\nevaluation of the money market and debt instruments proposed to be invested in.\n<\/p>\n\n\n\n

The credit evaluation of the issuer\nincludes:<\/p>\n\n\n\n