Arpit Agarwal is the Founder of KELP-Decoding Investments and has held the position of

CEO of Bajaj Finserv Wealth Management, MD & CEO of Dawnay Day AV, Head of Wealth
Management at ICICI Bank Ltd, BNP Paribas and DSP Merrill Lynch in the past.

Write to me on @CoachArpit or on CoachArpit@kelpmail.com

https://www.linkedin.com/in/arpitkelp/

Disclosure: My personal money is also invested in Mutual Funds.

May 5, 2020

DEBTEX30 and DEBTY50 - The Sensex and Nifty equivalent of Debt Funds

When it comes to equity investing, investors know the S&P BSE Sensex and NIFTY50. They use them
either as references to buy the largest Industry leading listed companies in India or to benchmark the
performance of their equity portfolios. The stocks in the Sensex and Nifty account for almost 50% and
58% of the total market capitalisation respectively. These companies attract the maximum investments
from FII’s and DII’s and are also the most researched. The 30 stocks of Sensex are also part of the Nifty.
I have always recommended that individual investors should have a large portion of their equity
portfolios in these stocks directly or through mutual funds that invest in them. In reality, many individual
investors land up chasing low priced stocks or selecting equity funds just on the basis of past returns
instead of studying their underlying portfolios.
When market conditions become extremely adverse, either in the case of Equity or Debt, there is flight
to safety. In case of Equity the flight is towards Large Caps and in case of Debt its towards the highest
credit quality and most liquid instruments. In 2018 and 2019, investors suffered sharp and large losses
in Small and Mid-Cap funds. Large-Cap and Multi-Cap funds that predominantly had the NIFTY50 stocks
performed much better. This in a way, is similar to what happened with the 6 Franklin Templeton Debt
fund as their exposure to Sub AAA paper was very high and the liquidity for those dried up.
In case of equity, there is an exit for investors at some price, but in case of debt, especially at times like
these, there are simply no buyers left. Debt Investing is more complicated than equities and there is
very little research available on corporate bonds in public domain for the investors to analyse even if
they wanted to. The several corporate bond downgrades during the last one year that led to the fall in
several Debt Fund NAVs and now, the recent Franklin Templeton event have come as a wake-up call to
investors for selecting debt funds. This had set me thinking on how to simplify the process of investing
in Debt Funds and come up with a quality subset like the equity indices above.
In my last article, I mentioned my mantra for investing “Manage Investment Risk and treat Return as
only a by-product”. Using the same principle, I present DEBTEX30 and DEBTY50 with the objective of
reducing Investment Risk across investment time horizons in Debt Funds.

DEBTEX30 and DEBTY50 will help you choose funds with the largest AUM (amount of money managed)
and highest Credit Quality of investments compared to their peer group.

In this report I will cover the list of funds in DEBTEX30 and DEBTY50 and their shortlisting process.

Types of Debt Funds and Investments Risks: Please watch my YouTube video of 25th May 2019 to
understand this in more detail. https://www.youtube.com/watch?v=5b9srikTvFQ

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 The big picture of Open-Ended Debt Funds in India looks fairly complex.
1. Money Managed More than Rupees 10 Lakh crores
2. AMCs managing this money Over 39
3. Categories of Debt Funds 15
4. Number of plans More than 3200 i.e. Direct, Regular, Growth, Dividend….

For investing in Debt Funds, you have to look at scheme ratings from several agencies. You should also
look at Credit Ratings of the securities in their portfolio and their potential downgrade risk and Liquidity
Risk. To add to this, a single company will usually have just one equity listing but may issue several debt
papers of varying maturity and interest rates which adds far more complexity to the process of
evaluating debt funds and their underlying portfolios. You may also need to have a view on future
Interest rates to finally arrive at an informed decision about which ones to invest in.

And to top all this, each scheme has variations like Regular, Direct, Growth, Dividend plans of varying
frequencies, Retail, Institutional plans and so on. Figure 1:

So how does one evaluate over 3200 different

plans to arrive at the 3-5 that need to be
selected for investing? DEBTEX30 and 320 Schemes
DEBTY50 does that for you.
< 5%
Sub >1000Cr
As a first step, we selected only the Direct Plans
AAA
and Growth options of all the open-ended debt
funds and this brought our list down from over
3200 to 320. To this, we applied our filtration
criteria and were left with a scheme list of 85. > 1 Yr

1. Sub AAA Investments < 5%

2. AUM > Rupees 1000 Crores
3. Track record > 1 year

Criteria 1: Sub AAA Investments less than 5% 85 Scheme List

My business partner asked me “why even allow
5% Sub AAA investments?” My view is that even
though a Fund Manager may want 100% of the
highest rated investments, it is possible that some of the corporate debt they are holding may get
downgraded by the rating agencies. It is also possible that they may find some good quality Sub AAA
paper and after meeting the management and looking the company financials, they are convinced about
taking an informed decision of investing in it. The limits of 5% is within the 20% normal borrowing limit
prescribed by SEBI in case of liquidity constraints.

Criteria 2: AUM greater than Rupees 1000cr

Size gives confidence to the investor, buying power to the FM and possibly increased liquidity in the
event of redemptions compared to much smaller funds.

Criteria 3: Track record greater than 1-year

This is to ensure we get enough data points to analyse the scheme.

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Next, by looking at the Average Maturities of these funds across all 15 categories, it is easy to conclude
that just 5 categories may meet the fixed income investment requirements of most retail investors. I
believe that 30 schemes across these 5 categories and 12 fund houses provide enough choice for
investors.

This led to the creation of the DEBTEX30.

For simplicity, the table below gives us a list of the 5 categories above and a ‘Needs map’ to refer to
below.
Figure 2: Needs map

Recommended Liquidity Credit Interest Rate Alternative For Bank

Category Risk Quality Risk Risk Money
Overnight Fund Low Almost Zero Zero Savings Account
Liquid Low Low Low 3 Mths Deposit
Money Market Low Low Low 3 Mths to 1 Yr FD
Banking and PSU Fund Medium Medium Medium 3 Yrs FD
Gilt Medium Zero High 3 to 5 Yrs FD

For the Informed Investors who may have more specific investment objectives and need a lot more
choice with respect to categories, I decided to add 20 more schemes representing the balance 8
categories of debt funds. None of the Credit Risk and Long Duration Funds made it to the shortlist of 85
due to either insufficient corpus or the credit quality threshold of the underlying portfolio.

This led to the creation of the DEBTY50. In Figure 3 below, is the category-wise composition of both.

DEBTEX30 is a stepping stone Open Ended Debt Fund Avg Maturity Sub AAA DEBTEX30 DEBTY50
for investors from simpler Categories in Months Paper % Schemes Schemes
investments to more complex Overnight Fund 0.08 6 6
ones in DEBTY50 without Liquid 1.78 0.21 12 12
increasing the Sub AAA credit risk Ultra Short Duration 6.87 2
exposure limit of 5%. Money Market 7.88 0.17 6 6
Low Duration 15.18 1.36 2
The average maturities of each Floating Rate 25.74 0.15 2
category of funds help as a Short Duration 31.21 3
reference for the time horizon for Banking and PSU Fund 38.94 0.79 4 4
which the investments in them Corporate Bond 47.95 0.31 7
could be made. As the Average Medium Duration 56.76 1
Medium to Long Duration 63.48 1
Maturity of a fund goes up, the
Dynamic Bond 106.51 2
interest rate risk also increases.
Gilt 131.34 2 2
Further there are 2 other risks in Scheme Count 30 50
Debt Funds viz. Liquidity Risk and Percentage of AUM represented 43% 57%
Credit Risk. The Debt Fund
Managers manage investors’ money and they get more money to manage if they give better returns
than their peer group. Now in the quest of being the best in what they do, they have to make decisions
of what to buy with the scheme money. They will at times take calculated investment decisions to invest
the money in Sub AAA investments with the objective of increasing scheme returns. This increases the
Liquidity Risk and Credit Risk of the scheme. By keeping our limit of Sub AAA paper at 5%, we are trying
to control those risks for investors.

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 Figure 4: Shortlisting Process from 320 to the DEBTY50 and DEBTEX30
Open Ended Debt Fund Scheme 31 Mar 2020 Selected 31 Mar 2020 DEBTY50 31 Mar 2020 DEBTEX30 31 Mar 2020
Categories Count AUM Crores Shortlist AUM Crores Count AUM Crores Count AUM Crores
Overnight Fund 30 80,179 13 75,566 6 56,036 6 56,036
Liquid 39 334,659 21 319,744 12 292,059 12 292,059
Ultra Short Duration 29 71,103 4 15,323 2 11,336 6 43,169
Money Market 20 55,418 9 51,985 6 43,169
Low Duration 26 80,581 5 15,033 2 8,620
Floating Rate 7 32,429 3 15,494 2 14,382
Credit Risk Fund 20 55,178
Short Duration 28 93,236 4 28,210 3 25,877
Corporate Bond 19 81,531 10 77,386 7 74,185
Banking and PSU Fund 19 72,065 6 44,463 4 40,889 4 40,889
Medium Duration 16 28,016 1 3,006 1 3,006
Dynamic Bond 28 18,045 3 4,634 2 3,444
Medium to Long Duration 13 9,784 2 4,661 1 3,363
Gilt 24 10,150 4 5,863 2 3,656 2 3,656
Long Duration 2 1,668
Grand Total 320 1,024,043 85 661,367 50 580,023 30 435,809

From this data we conclude the following:

1. A significant part Debt Fund AUMs is in very good quality debt securities as on 31st March 2020.
2. Shortlisted 85 of the 320 schemes account for almost 65% of the total AUM.
3. DEBTY50 represents about 15% of the total schemes and 56% of the total AUM.
4. DEBTEX30 represents about 10% of the total schemes and 42% of the total AUM.
The detailed list of the funds in DEBTEX30 and DEBTY50 is given in Table 5 on page 5. We will update
this on a half yearly basis or if there is an extraordinary event which forces a change in any of these
schemes. Investors may select Growth or Dividend plans as per their investment needs.
I will explain the returns of these schemes and compare them to their benchmark indices in a future
article to show you that for the possibility of a small percentage increase in returns, it may not be worth
taking higher risk.
The easiest things are always the hardest to do. Even though doing them is very easy, doing them
consistently is the hard part. Following investment rules is one such thing.
Happy Knowledge Based Investing. Click on the links below to download KELP-Decoding Investments,
our Mobile Application and watch our YouTube channel to become a more informed investor.

Apple App Store Android Play Store

Data in this report is as on 31st March 2020 and is from various sources including AceMF. I cannot vouch
for the accuracy of the data so please exercise caution in making investment decisions. Read the offer
documents of Mutual Fund Schemes carefully before investing.

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 Figure 5:
Avg
DEBTEX30 & DEBTY50 List of Schemes (Data as on 31 Mar 2020) Corpus Sub AAA
Maturity
S. No. Category Scheme Name (Rupees Cr) %
in Months
1 HDFC Overnight Fund(G) 15,372 0.07
2 ICICI Pru Overnight Fund(G) 10,321 0.12
3 SBI Overnight Fund-Reg(G) 9,436 0.03
Overnight Fund
4 Aditya Birla SL Overnight Fund-Reg(G) 9,054 0.03
5 Kotak Overnight Fund-Reg(G) 6,434 0.12
6 Nippon India Overnight Fund-Reg(G) 5,418 0.10
7 HDFC Liquid Fund(G) 71,319 0.30 1.93
8 ICICI Pru Liquid Fund(G) 37,995 0.92 2.21
9 SBI Liquid Fund(G) D 37,768 1.56
10 Aditya Birla SL Liquid Fund(G) 30,612 0.76 1.56
11 Kotak Liquid Fund-Reg(G) E 23,622 1.92
12 Nippon India Liquid Fund(G) 21,754 1.87
13
Liquid
Axis Liquid Fund-Reg(G) B 19,980 0.50 1.77
14 UTI Liquid Cash Plan-Reg(G) 18,287 1.59
15 Tata Liquid Fund-Reg(G) T 9,430 1.70
16 DSP Liquidity Fund-Reg(G) 8,191 1.80
17 IDFC Cash Fund-Reg(G) E 7,003 1.53
18 L&T Liquid Fund(G) 6,098 1.92
19 SBI Savings Fund-Reg(G) X 10,868 1.02 6.36
20
21
Aditya Birla SL Money Manager Fund(G)
Kotak Money Market Fund(G) 3 D 8,318
7,188
9.60
4.92

0 E
Money Market
22 HDFC Money Market Fund(G) 6,692 10.47
23 ICICI Pru Money Market Fund(G) 5,529 10.57
24 UTI Money Market Fund-Reg(G) B 4,575 5.39
25 IDFC Banking & PSU Debt Fund-Reg(G) 13,750 35.88
26
Banking and PSU Fund
Axis Banking & PSU Debt Fund-Reg(G) T 13,089 28.80
27 Aditya Birla SL Banking & PSU Debt(G) 9,773 3.20 52.08
28 Nippon India Banking & PSU Debt Fund(G) Y 4,276 39.00
29 SBI Magnum Gilt Fund-Reg(G) 2,251 122.52
30
Gilt
ICICI Pru Gilt Fund(G) 5 1,405 140.16
31 HDFC Ultra Short Term Fund-Reg(G) 7,155 7.90
32
Ultra Short Duration
IDFC Ultra Short Term Fund-Reg(G) 0 4,182 5.83
33 Nippon India Floating Rate Fund(G) 7,676 35.52
Floating Rate
34 Aditya Birla SL Floating Rate Fund(G) 6,706 0.37 15.96
35 IDFC Bond Fund - Short Term Plan-Reg(G) 11,573 27.72
36 Short Duration Kotak Bond Short Term Fund(G) 9,526 36.00
37 L&T Short Term Bond Fund-Reg(G) 4,778 29.88
38 IDFC Low Duration Fund-Reg(G) 4,391 15.97
Low Duration
39 Axis Treasury Advantage Fund-Reg(G) 4,229 2.71 14.40
40 Aditya Birla SL Corp Bond Fund(G) 16,895 2.19 42.84
41 HDFC Corp Bond Fund(G) 12,828 52.44
42 IDFC Corp Bond Fund-Reg(G) 12,817 45.36
43 Corporate Bond SBI Corp Bond Fund-Reg(G) 12,435 40.92
44 ICICI Pru Corp Bond Fund(G) 11,736 38.16
45 Kotak Corporate Bond Fund(G) 4,306 19.20
46 L&T Triple Ace Bond Fund-Reg(G) 3,168 96.72
47 Medium Duration IDFC Bond Fund - Medium Term Plan-Reg(G) 3,006 56.76
48 IDFC Dynamic Bond Fund-Reg(G) 2,102 96.96
Dynamic Bond
49 SBI Dynamic Bond Fund-Reg(G) 1,342 116.04
50 Medium to Long Duration ICICI Pru Bond Fund(G) 3,363 63.48

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