{"id":357,"date":"2019-05-27T08:46:35","date_gmt":"2019-05-27T08:46:35","guid":{"rendered":"http:\/\/blog.certifiedfinancialguardian.com\/?p=357"},"modified":"2019-05-27T12:29:24","modified_gmt":"2019-05-27T12:29:24","slug":"yes-ultra-short-term-fund-should-you-invest","status":"publish","type":"post","link":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/2019\/05\/27\/yes-ultra-short-term-fund-should-you-invest\/","title":{"rendered":"YES Ultra Short Term Fund: Should You Invest?"},"content":{"rendered":"\n

Yes Mutual Fund, a newbie in the Mutual Fund<\/a> industry has launched yet another debt scheme, Yes Ultra Short-Term Fund (YUSTF), to increase its product offering for its growth in the competitive industry.  YUSTF is an open-ended debt scheme investing in debt and money market instruments such that the Macaulay duration of the portfolio is between 3-6 months.  <\/p>\n\n\n\n

What\nis the <\/strong>Macaulay duration?<\/strong><\/p>\n\n\n\n

The Macaulay Duration is the weighted\naverage term-to-maturity of the cash flows from a bond. The weight of each cash\nflow is determined by dividing the present value of the cash flow by the price.<\/p>\n\n\n\n

The Macaulay duration calculates the\nweighted average time before a bondholder would receive the bond’s cash flows.\nIt is essentially an average of the duration of bonds within the portfolio, accounting\nfor what percentage of the total portfolio each bond represents.<\/p>\n\n\n\n

It is defined as the average time taken for\nan investor to receive all the cash flows (periodic interest as well as\nprincipal repayments) of a bond, weighted by the present value of each of the\ncash flows.<\/p>\n\n\n\n

Mathematically, the\nMacaulay duration of a zero-coupon bond would be equal to the bond’s maturity\nMacaulay duration and can be calculated as follows:<\/p>\n\n\n\n

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

Where:<\/p>\n\n\n\n

t = respective time period<\/p>\n\n\n\n

c = periodic coupon payment<\/p>\n\n\n\n

y = periodic yield<\/p>\n\n\n\n

n = total number of periods<\/p>\n\n\n\n

m= maturity value<\/p>\n\n\n\n

Current Bond Price = Present value of cash\nflows<\/p>\n\n\n\n

Compared to a liquid fund<\/a> an ultra-short-term fund invests in higher maturity debt papers and money market instruments.<\/p>\n\n\n\n

[Read:<\/strong> How the IL&FS Fiasco Put Money In Liquid Funds At Risk<\/a>]<\/strong><\/p>\n\n\n\n

Note that the bond prices are inversely\nrelated to the interest rates. Hence if a bond that has a longer maturity, is\nextremely price sensitive to changes in the interest rate as compared to bonds\nhaving a short duration. An ultra-short-term fund help investor reduce this\ninterest rate risk and offer better returns than most money market instruments.<\/p>\n\n\n\n

As per the mandate, YUSTF will allocate all its assets<\/a> in money market instruments that include Commercial Paper, Certificate of Deposit, short term Deposit, convertible debentures, non-convertible debentures, Treasury Bills, short-term debt instruments, securitise debt, reverse repos in Government Securities etc. issued by various corporate, government – State and Central, Public Sector Undertakings (PSUs), etc. within the prescribed limits along with debt securities.<\/p>\n\n\n\n

From the risk-return standpoint, YUSTF is a relatively moderately low risk-return<\/a>. If you are planning to invest for your short-term goals<\/a> (buying a vehicle, etc.), where you will require money within 3 to 6 months, then consider ultra short-term fund. The ideal time horizon to park money in an ultra-short-term fund is 3 to 6 months.<\/p>\n\n\n\n

[Read:<\/strong> Why Comparing Returns to Risk Is More Meaningful!<\/a>]<\/strong><\/p>\n\n\n\n

Table\n1: NFO Details<\/em><\/strong><\/p>\n\n\n\n
\n Type<\/strong>\n <\/td>\n An open-ended debt scheme\n <\/td>\n Category<\/strong>\n <\/td>\n Ultra-Short Duration Fund\n <\/td><\/tr>
\n Investment Objective<\/strong>\n <\/td>\n To generate reasonable income with low volatility through investment in a portfolio comprising of debt & money market instruments.
\nHowever, there can be no assurance that the investment objective of the Scheme will be achieved. The Scheme does not guarantee\/indicate any returns.\n\n <\/td>\n<\/tr>
\n Min. Investment<\/strong>\n <\/td>\nRs 1,000 and in multiples of Re 1 thereafter\n <\/td>\n Face Value<\/strong>\n <\/td>\n Rs 10 per unit\n <\/td><\/tr>
\n Plans <\/strong>\n <\/td>\n
    \n
  • Direct*<\/li>
  • Regular<\/li><\/ul> \n <\/td>
\n Options<\/strong>\n <\/td>\n
    \n
  • Growth(default option)<\/li>
    \n
  • Dividend<\/li><\/ul>\n
      \n
    • Re-investment Facility (default option)<\/li>\n
    • Pay-out Facility<\/li><\/ul>\n *Default\n option<\/em>\n <\/td><\/tr>
\n Entry Load<\/strong>\n <\/td>\n Not Applicable\n <\/td>\n Exit Load<\/strong>\n <\/td>\n Nil\n \n <\/td><\/tr>
\n Fund Manager<\/strong>\n <\/td>\n Mr Piyush Baranwal\n <\/td>\n Benchmark Index<\/strong>\n <\/td>\n CRISIL Ultra Short Term Debt Index\n <\/td><\/tr>
\n Issue Opens:<\/strong>\n <\/td>\n May 24, 2019\n <\/td>\n Issue Closes:<\/strong>\n <\/td>\n June 06, 2019\n <\/td><\/tr><\/tbody><\/table>\n\n\n\n

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

How will Yes Ultra Short-Term Fund\nallocate its assets?<\/strong><\/p>\n\n\n\n

Under normal circumstances, the asset all<\/a>o<\/a>cation<\/a> pattern will be as under:<\/p>\n\n\n\n

Table\n2: YUSTF\u2019s Asset Allocation<\/em><\/strong><\/p>\n\n\n\n\n \n \n \n

 <\/strong>\n

Instruments<\/strong><\/td>\n

Indicative allocations
\n (% of Total Assets)<\/strong><\/td>\n 		Risk Profile<\/strong><\/td>\n <\/tr>\n
Minimum<\/strong><\/td>\n Maximum<\/strong><\/td>\n (Low\/ Medium\/ High)<\/strong><\/td>\n <\/tr>\n
Money market instruments* (including CBLO\/Tri party repo & Repo) & Debt Securities (including securitized debt)#$<\/td>\n 0<\/td>\n 100<\/td>\n Low to Medium<\/td>\n <\/tr>\n<\/table>\n\n\n\n

* Includes commercial papers, commercial bills, treasury bills, Government securities having an unexpired maturity up to one year, call or notice money, certificate of deposit, usance bills and any other like instruments as specified by the Reserve Bank of India from time to time.

$ The Macaulay duration of the portfolio of the Scheme would be between 3 to 6 months.

# Debt Securities includes securitized debts and liquid schemes launched by SEBI registered Mutual Fund or schemes that invest predominantly in money market instruments\/ securities.

Securitized debt cumulative allocation not to exceed 50% of the net assets of the Scheme.

The Scheme may undertake (i) repo \/ reverse repo transactions in Corporate Debt Securities; (ii) Credit Default Swaps, (iii) Short Selling and such other transactions in accordance with guidelines issued by RBI and SEBI from time to time.

Investment in Derivatives \u2013 The Scheme may invest up to 50% of its net assets in Derivatives. The Scheme may invest in derivatives based on the opportunities available subject to the guidelines provided by SEBI from time to time and in line with the overall investment objective of the Scheme.

The Scheme may invest in derivative instruments like Futures, Options, Interest Rate Swaps, Forward Rate Agreements, and such other derivative instruments as may be permitted by SEBI from time to time.

Derivative investments may be undertaken to hedge the portfolio, rebalance the same or to undertake any other strategy as permitted under SEBI (MF) Regulations from time to time. Hedging could be perfect or imperfect. <\/p>\n\n\n\n

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

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

The Yes\nUltra Short-Term Fund aims to generate reasonable returns with low volatility\nfrom a portfolio of money market and debt securities. The fund gives importance\nto reducing credit risk and achieving portfolio diversification. The fund\nintends to maintain the Macaulay duration between 3 months and 6 months. <\/p>\n\n\n\n

The fund\nmanagement team will take an active view of the interest rate movement by\nkeeping a close watch on various parameters of the Indian economy, as well as\ndevelopments in global markets. <\/p>\n\n\n\n

The fund\nmanager with his team will, as a mitigation and risk control procedure, carry\nout rigorous credit evaluation of the issuer company proposed to be invested\nin. The credit evaluation process for an issuer includes<\/p>\n\n\n\n