#INVESTFORGOOD

DSP Floater Fund

[Title todebt
(An open ended come]
scheme predominantly investing in floating rate instruments (including
fixed rate instruments
[Sub-Title to come] converted to floating rate exposures using swaps/ derivatives))

| People | Processes | Performance |

Navigating interest rate cycles

Date Strictly for Intended Recipients Only

* DSP India Fund is the Company incorporated in Mauritius, under which ILSF is the corresponding share class
DSP Floater Fund – Key Highlights

Navigating rate cycle • Fund with potential to gain from fall in interest rate as well as enabler to
shield portfolio returns in times of reversal of interest rate cycle

Relatively Stable return • One-stop investment destination for investors without worrying about
changes in interest rate cycles

No credit risk * • Fund seeks to invest only in Sovereign securities (Government

Securities/State Development Loans - SDL) thereby having no credit risk

Fund aims to generate return from

Accrual + Capital gain • Periodic accrual from Sovereign positions
• Net capital gain/loss from Sovereign & paid OIS position

• Active management in paid OIS position with roll down strategy in G-

Active + Passive Fund Sec/SDL provides benefit of both active & passive fund management
Management • The fund aids to tick the right boxes for meeting expectation from Fixed
income i.e. Liquidity, Predictability, Returns & Lower volatility

Differentiated offering • One of kind product in short term category (i.e. duration band 1 to 4 years)
with interest rate hedge using paid position in Overnight Index Swap (OIS) $

$ Refer slide 22 for overview on OIS; * For scheme specific risk factors and more details, please read the Scheme Information Document.

2
Who can consider investing in DSP Floater Fund ?

• Investors who seeks to stay put in a single fund not worrying about
changes in rate cycles or active management of credit/ duration.
Retail
Investors • Investors seeking a lower risk alternate to fixed deposit with
minimum holding period > 1 year

• For well-informed investor who can time the market, execute the
views in credit/duration segment and effectively use the money
Seasoned market funds to immune investments through rising yields;
investors
• DSP Floater Fund can be an enabler to earn through the rising
yield scenario as well.

Corporate • Corporate investors who opt to utilize short term funds (1-4 year
Investors duration) for fixed income exposure & preferring to remain less
worried about liquidity, credit and exposure risks of the portfolio

Single fund catering multiple investors need

3
Fund
[Titleconstruct
to come]and strategy
[Sub-Title to come]

Date Strictly for Intended Recipients Only

* DSP India Fund is the Company incorporated in Mauritius, under which ILSF is the corresponding share class
Fund construct - Overview

 The fund aims to curate a construct between

• Sovereign securities -
- G-Sec / SDLs with maturity between 2 - 6 years
How portfolio will be - Roll down strategy in Sovereign position with buy & hold approach
constructed?
• Paid position in Overnight Index Swap (OIS)
- Tenure of contract ranging from 1 month to 3 years.

 Starting point of construct will be determined by the spreads between these two segments.

 When maturity of G-Sec/SDL & paid OIS position is same i.e. net duration is close to zero.
 Exercise similar to any roll down fund
Reinstatement of  Extent of duration reinstatement will be determined by
portfolio • Spreads between OIS and G-Sec/SDL
• Phases of interest rate cycle

Drivers of returns in the construct are three pronged;

Drivers Determined by Historic YTM range *
Movement in G-Sec 4.6 9.7
Demand supply of G-Sec bonds
Yield 5.8 7.1
Drivers of Returns Movement in OIS Outlook on benchmark rate (Repo) 3.6 10.2
Yield resets 4.2 6.4
Movement in 3.3 10.4
Existing liquidity conditions 3.5 6.3
Overnight rates
Current YTM Historic Average
Eventually all three drivers of returns move in the same direction; albeit at different times
enabling the fund to balance between these drivers of returns

A well defined fund structure with diversified drivers for returns

Source: Bloomberg ; * Data as on from 01 July 2001 till 22 Feb 2021 ;4Y G-Sec yield considered 5
Fund construct – Strategy based on current spreads

 Fund would seek to invest in

• Government Security
- 4 Year G-Sec rolling down up to 12/24 months.

Fund positioning • Paid OIS position (Synthetic floating rate exposure)

- Contract bearing maturity of 2 / 3 years

 Proportion between G-Sec and paid OIS position to be maintained at 1:1 which may
reduce to 1:0.7

(Example - For INR 1000 crores of AUM, the fund will have exposure to
a) G-Sec maturing in 2025 / 2026 worth maximum INR 1000 cr ;
b) Paid OIS position of 2/3 years worth 1000 cr which can reduce upto INR 700 cr)

 Roll down component in 4 Year G-Secs aims to provide stable / predictable accruals
with periodic reduction in duration

How will it help  Paid position in 2 / 3 year OIS hedges risks of reversals in rate cycle + add to accruals
investors ? as the liquidity tightens.

 Combination of 4 Year G-Secs + 2/3 year paid OIS position will reflect in a lower
maturity profile (~2 years) for the fund which will keep reducing every passing
quarter

A differentiated fund with short term profile + an enabler to hedge interest rate risk during
interest rate cycle reversal
6
Source: Internal
Understanding
[Title to come]rationale for fund construct
[Sub-Title to come]

Date Strictly for Intended Recipients Only

* DSP India Fund is the Company incorporated in Mauritius, under which ILSF is the corresponding share class
Rationale for fund construct - Current spread between 4 year G-Sec & 2 Year OIS

Steepness in spread between 4 year G-Sec & 2 year OIS is very high

Historical yield trend

10

Spread between 4 Year G-Sec & 2 year

8
OIS tend to compress through the
period of reversal of interest rate cycles
7
Yield

OIS 2 Year Repo rate G-Sec 4 year

4

3
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21

Spreads between 4 Yr Gsec and 2 Yr OIS

Particulars 5 years 10 years 15 years  Currently spreads are trading at considerably

higher levels than its historical average.
Current spread 1.53%
Historical Average 0.83% 0.72% 0.74%  This aims to provide margin of safety & scope
for spread to compress, especially when we
Margin of Safety 0.70% 0.81% 0.79% head into a interest rate reversal cycle.

Higher spread between 4 year G-Sec & 2 year OIS provides margin of safety
Source: Bloomberg ; Data as on 22 Feb 2021 8
4 Year G-Sec vs Repo rate - What does it imply ?

4Y G-Sec vs Repo rate

 Spread between 4 Year G-sec and Repo rate are very high
10 currently relative to its history providing Margin of Safety
for 4Y G-Sec position in scenario of RBI repo rate hike
9
Particulars 5 years 10 years 15 years
8
Current spread 1.76%

7 Historical Average 0.86% 0.67% 0.78%

Margin of safety 0.90% 1.09% 0.98%
6

5  Roll down component in 4Y G-Sec will also enable to

reduce maturity as we get closer to rate hikes thereby
4 aiding to minimise MTM loss

Repo rate G-Sec 4 year

Source: Bloomberg ; Data as on 22 Feb 2021

High margin of safety + Roll down strategy provides comfort on G-Sec positions in scenario of
rate hike by RBI
9
2 Year OIS vs Repo rate - What does it imply ?

2 Year OIS vs Repo rate  Spread between 2 Year OIS and Repo rate have
almost dropped to 0 as on 22 Feb 2021
10
 In scenario of repo rate hike by RBI, it is generally
9
observed that 2 Year OIS yield shoots up leading to
spread widening between 2 Year OIS and Repo rate

8
Repo rate movement 2 Year OIS Movement
Period
7 Min Max Net Min Max Net

Jan 08-Jul 08 7.75% 9.00% 1.25% 6.34% 10.17% 3.83%

6
Apr 09-Oct 11 4.75% 8.50% 3.75% 4.15% 8.15% 4.00%

5 May 13-Jan 14 7.25% 8.00% 0.75% 6.75% 9.43% 2.68%

Aug 17-Aug 18 6.00% 6.50% 0.50% 5.97% 7.18% 1.21%

4

 This widening of spread provide prospects of MTM

3 gain from the paid OIS positions

2 Year OIS Repo rate

Source: Bloomberg ; Data as on 22 Feb 2021

Paid OIS exposure can enable fund to benefit through rate hiking cycle

10
Overnight rate vs Repo rate - What does it imply ?

Overnight rate vs Repo rate SIGNIFICANCE OF OVERNIGHT RATE

10
OIS 2 Year  Paid OIS position earns overnight rates on a daily
Repo rate
basis indicating accrual component of OIS exposure.
9 Overnight rate (MIBOR)

 Wide spreads between OIS yield and the overnight

8 rates indicate the prospects of rising overnight
rates especially in times of a liquidity cycle reversal
7

6
INSIGHTS
5
 Barring the phase of 2009-11, overnight rate have
traded close to or above repo rates
4.23
4 4.00
3.46
 Currently, overnight rate < repo rate, which is
3
expected to trend towards repo rate as RBI has
already began normalisation of liquidity

2  As overnight rate move closer to repo rates, the

accrual profile of paid OIS position incrementally
improves
Source: Bloomberg ; Data as on 22 Feb 2021

Rise in overnight rate through normalisation of liquidity can add to the overall accrual profile
of the fund.
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Understanding scenarios when fund can
[Title to come]
outperform/underperform
[Sub-Title to come]

Date Strictly for Intended Recipients Only

* DSP India Fund is the Company incorporated in Mauritius, under which ILSF is the corresponding share class
When can fund outperform - Spread compression between 4Y G-Sec & 2 Year OIS

Scenarios for spread

compression Impact on
Particular Remarks
fund
G-Sec yield OIS yield

Scenario 1 Positive • Mark to market (MTM) gain in G-Sec

Scenario 2 Positive • MTM gain in paid OIS

Scenario 3 Positive • Win-Win scenario - MTM gain in both G-Sec & paid OIS

• For spread to compress, fall in G-Sec yield > fall in OIS yield
• MTM gain in G-Sec while MTM loss in paid OIS
Scenario 4 Net Positive
• Longer dated G-Sec may have higher MTM gain offsetting
MTM loss in paid OIS
• For spread to compress, rise in OIS yield > rise in G-Sec yield
• MTM gain in paid OIS while MTM loss in G-Sec
• MTM gain in paid OIS may help to offset MTM loss in G-Sec
Scenario 5 Net Positive
• Roll down strategy in G-Sec will aid to minimise MTM loss
due to reducing duration risk as maturity keeps reducing
every passing quarter

Spread compression between G-Sec & OIS may benefit the fund in various scenarios

The above illustration is for information purposes only. 13

When can fund underperform - Spread widening between 4Y G-Sec & 2Y OIS

Scenarios for spread

widening Impact on
Particular Remarks
fund
G-Sec yield OIS yield

Scenario 1 Negative • Mark to market (MTM) loss in paid OIS

Scenario 2 Negative • MTM loss in G-Sec

Scenario 3 Negative • Adverse scenario - MTM loss in both G-Sec & paid OIS
• For spread to widen, fall in OIS yield > fall in G-Sec yield
• MTM gain in G-Sec while MTM loss in paid OIS
Scenario 4 Net Negative
• MTM gain in G-Sec may not be enough to offset MTM loss in paid
OIS
• For spread to widen, rise in G-Sec yield > rise in OIS yield
• MTM gain in OIS positions while MTM loss in G-Sec positions
• MTM gain in OIS position may not be enough to offset MTM loss in
Scenario 5 Net Negative G-Sec positions.
• However, roll down strategy in G-Sec will help to minimise MTM
loss due to reducing duration risk as maturity keeps reducing every
passing quarter

Spread widening can happen when government announces higher borrowing & RBI supports through higher liquidity. (Former has
already played out resulting in wider spreads)

Spread widening can lead to fund underperformance however probability of wider spread
sustaining is LOW considering the extent of steepness currently.

The above illustration is for information purposes only. 14

In a nutshell,
Rising interest rate cycle
 As and when yields rise, G-Sec exposure
will be subject to capital losses.
 Rising interest rate scenario will also imply
eventual rise in OIS yield generating
capital gain in OIS position
 Rise in OIS levels in a higher proportion
(to rise in yields of government securities)
can bridge the gap in yields between G-
Sec and OIS. This will enable the fund to
generate return in a rising rate scenario.
DSP Floater Fund can help investor navigate interest rate cycles
Falling interest rate cycle
 As and when yield falls, paid OIS position
will be subject to capital loss.
 Falling interest rate scenario will also
imply eventual fall in G-Sec yield
generating capital gain in G-Sec position
 Fall in G-Sec yield in a higher proportion
(to fall in yields of OIS) can bridge the gap
in yields between G-Sec and OIS. As G-Sec
component bears higher maturity, this
exposure will enable fund to generate
return in falling rate scenario.
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Risk Management
[Title to come]
[Sub-Title to come]

Date Strictly for Intended Recipients Only

* DSP India Fund is the Company incorporated in Mauritius, under which ILSF is the corresponding share class
Risk Management
 Roll down exposure of G-Sec + Paid OIS position has a implied starting point of
maturity closer to 2 years. This will eventually reduce every passing quarter.
Interest rate risk  Fund has an enabler which aims to offset mark to market (MTM) losses in G-Secs
during rising interest rate cycle through MTM gain in paid OIS positions.

No credit risk since fund seeks to invest only in Sovereign securities

Credit Risk

Liquidity risk The fund invests in the most liquid segment of fixed income market (i.e. G-Sec & OIS)

 Fund may have phases of volatility especially when spread between G-Sec & paid
OIS position widens (This can happen when government increases borrowing and RBI
temporarily supports borrowing with higher liquidity.)
Volatility
 However, higher fiscal deficit and higher Government borrowing eventually
advances prospects of liquidity normalization & rate reversals. These prospects
may lead to compression of spreads thereby enabling fund to generate returns

An inherent fund structure that aids to mitigate different types of investment risk across
interest rate cycles
For scheme specific risk factors and more details, please read the Scheme Information Document. 17
Other
[Titlefund details
to come]
[Sub-Title to come]

Date Strictly for Intended Recipients Only

* DSP India Fund is the Company incorporated in Mauritius, under which ILSF is the corresponding share class
Asset allocation & Indicative security selection

Asset allocation (as per SID) Indicative security selection

Indicative allocations
(% of total assets) Risk
Instruments The fund seek to bear exposure mainly to
Profile
Minimum Maximum
a. Sovereign Securities
Securities issued by state & central
government

Floating Rate Debt b. Overnight Index Swaps (OIS)

Securities (including fixed Low to Paid positions in OIS for creating synthetic
rate Securities converted 65% 100% medium floating rate exposure
to floating rate exposures
using swaps/ derivatives)

Fund may have some exposure to money

Fixed Rate Debt Securities Low to market instruments due to
(including money market 0% 35% medium subscription/redemption requests.
instruments)

DSP Floater Fund = Sovereign securities (Roll Down) + Paid OIS Exposure

19
Source: Internal
NFO details

Nature Details

Name of the Fund DSP Floater Fund - An open ended debt scheme predominantly investing in floating rate
instruments (including fixed rate instruments converted to floating rate exposures using
swaps/ derivatives)
Investment Objective The primary objective of the scheme is to generate regular income through investment
predominantly in floating rate and fixed rate debt instruments (including money market
instruments).
Benchmark details CRISIL Short Term Gilt Index

Minimum Application Amount Rs. 500/– and any amount thereafter.

(Fresh purchase)
Exit Load Nil

Fund Manager Mr. Saurabh Bhatia

NFO open date 04 Mar 2021

NFO close date 17 Mar 2021

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 DSP’s Fixed Income Strategies Positioning
DSP 10Y G-Sec fund Duration

DSP Government Securities Fund

DSP Strategic Bond Fund All Seasons

DSP Bond Fund

DSP Credit Risk Fund Credit

DSP Banking & PSU Debt Fund

Short Term
DSP Short Term Fund

DSP Floater Fund Short term + Roll down

DSP Corporate Bond Fund
(3.5 year roll down)
Roll Down
DSP Savings Fund
(1 year roll down)

DSP Low Duration Fund

Money Market
DSP Ultra Short Fund

DSP Liquidity Fund

0 1 2 3 4 5 10
Macaulay’s Duration (MD)
Typical range of MD MD as on Jan 31, 2021 MD at starting point of fund Source - Internal 21
Annexure – Overnight Index Swap (A brief overview)

What is Overnight Index Swap (OIS) ?

Overnight Index Swap is a type of Interest Rate Swap wherein overnight rate (MIBOR linked) is used for floating leg of the transaction.

How a Mutual fund uses OIS to hedge interest rate risk?

A mutual fund can use OIS to convert fixed interest rate to floating interest rate
Enter a Swap

Buy a fixed income Pay OIS Receive Overnight Rate

security (Fixed Rate) (Floating Rate)

A fund invests in 4 year G-Sec of Rs. 1,000 Cr @ 5.75% & in order to hedge their interest rate risk
Illustration pays a 2 year OIS of 4.10% on a notional value of Rs. 1,000 Cr.

RISING INTEREST RATE SCENARIO FALLING INTEREST RATE SCENARIO

Assuming after 12 months interest rate goes up by 50 bps &

Assuming after 12 months interest rate goes down by 70 bps &
OIS goes up by 70 bps. The fund will have
OIS goes down by 50 bps. The fund will have
- Loss on G-Sec trade@ = 50 bps * 3 approx .duration: (-) Rs. 1.5
- Gain on G-Sec@ trade = 70 bps * 3 approx .duration: (+) Rs. 2.1
- Gain on OIS trade = 70 bps * 2 approx. duration: (+) Rs. 1.4
- Loss on OIS trade = 50 bps * 2 approx. duration: (-) Rs. 1.0
Hence the investor lost only 10ps instead of losing Rs.
Hence the investor made net gain of Rs.1.1
1.50

@ 4Y G-Sec assumed to be roll down as a result of which duration has reduced after 1 year
22
Disclaimer & Product labelling
This presentation is for information purposes only. In this material DSP Investment Managers Private Limited (the AMC) has used information that is publicly
available. Information gathered and used in this material is believed to be from reliable sources. While utmost care has been exercised while preparing this
document, the AMC nor any person connected does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and
damages arising out of the use of this information. The recipient(s) before acting on any information herein should make his/their own investigation and seek
appropriate professional advice. The statements contained herein may include statements of future expectations and other forward looking statements that are
based on prevailing market conditions / various other factors and involve known and unknown risks and uncertainties that could cause actual results,
performance or events to differ materially from those expressed or implied in such statements. All opinions, figures, charts/graphs and data included in this
presentation are as on specific date and are subject to change without notice. There is no assurance of any returns/capital protection/capital guarantee to the
investors in the Scheme. The presentation indicates the strategy/investment approach to be followed by the Scheme and the same may change in future
depending on market conditions and other factors.

The distribution of this material in certain jurisdiction may be restricted or subject to registration requirements and, accordingly, persons who come in to
possession of this material in such jurisdictions are required to inform themselves about, and to observe, any such restrictions.

Past performance may or may not be sustained in the future and should not be used as a basis for comparison with other investments.
For complete details on investment objective, investment strategy, asset allocation, scheme specific risk factors and more details, please read the Scheme
Information Document, Statement of Additional Information and Key Information Memorandum of respective scheme available on ISC of AMC and also available
on www.dspim.com

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Fund Product Suitability Riskometer

DSP FLOATER FUND

This product is suitable for investors who are seeking*
(An open ended debt scheme
predominantly investing in floating rate
•To generate regular Income
instruments (including fixed rate
• Investment predominantly in floating rate instruments (including fixed rate
instruments converted to floating rate
instruments converted to floating rate exposures)
exposures using swaps/ derivatives))

*Investors should consult their financial advisers if in doubt about whether the Scheme is suitable for them.

23
Product labelling
DSP Liquidity Fund
An open ended liquid scheme
DSP Overnight Fund
An Open Ended Debt Scheme Investing in Overnight
Securities
DSP Ultra Short Fund
An open ended ultra-short term debt scheme
investing in debt and money market securities such
that the Macaulay duration of the portfolio is
between 3 months and 6 months (please refer page
no. 21 under the section “Where will the Scheme
invest?” in the SID for details on Macaulay’s
Duration)
DSP Savings Fund
An open ended debt scheme investing in money
market instruments
DSP Banking & PSU Debt Fund
An open ended debt scheme
predominantly investing in Debt instruments of
banks, Public Sector Undertakings, Public Financial
Institutions and Municipal Bonds.
*Investors should consult their financial/tax advisors if in doubt about whether the scheme is suitable for them.
This Open Ended Income (Liquid) Scheme is suitable for investors
who are seeking*
•Income over a short-term investment horizon
•Investment in money market and debt securities, with maturity
not exceeding 91 days
This open ended debt scheme is suitable for investor who are
seeking*
•reasonable returns with high levels of safety and convenience of
liquidity over short term
•Investment in debt and money market instruments having
maturity of upto 1 business day
This Scheme is suitable for investors who are seeking*
•Income over a short-term investment horizon
•Investment in money market and debt securities
This Scheme is suitable for investors who are seeking*
•Income over a short-term investment horizon
•Investment in money market instruments with maturity less than
or equal to 1 year.
This Scheme is suitable for investors who are seeking*
•Income over a short-term investment horizon
•Investment in money market and debt securities issued by
banks and public sector undertakings, public financial
institutions and Municipal Bonds
24
Product labelling

DSP Low Duration Fund

An open ended low duration debt scheme investing in This Scheme is suitable for investors who are seeking*
debt and money market securities such that the
Macaulay duration of the portfolio is between 6 •Income over a short-term investment horizon.
months and 12 months (please refer page no. 20 •Investments in money market and debt securities
under the section “Where will the Scheme invest?” in
the SID for details on Macaulay’s Duration)

This open ended debt scheme is suitable for investors who

DSP Corporate Bond Fund
are seeking*
An open ended debt scheme
predominantly investing in AA+ and above rated
•Income over a medium-term to long term investment
corporate bonds
horizon
•Investment in money market and debt securities

DSP Government Securities Fund
An open ended debt scheme investing in government
securities across maturity
DSP Short Term Fund
An open ended short term debt scheme investing in
debt and money market securities such that the
Macaulay duration of the portfolio is between 1 year and
3 years (please refer page no. 19 under the section
“Where will the Scheme invest?” in the SID for details
on Macaulay’s Duration)
DSP Strategic Bond Fund
An open ended dynamic debt
scheme investing across duration
This Open Ended Income Scheme is suitable for investors
who are seeking*
•Income over a long-term investment horizon
•Investment in Central government securities
This Scheme is suitable for investors who are seeking*
•Income over a medium-term investment horizon
•Investment in money market and debt securities
This Open Ended Income Scheme is suitable for investors
who are seeking*
•Income over a medium to long term investment horizon
•Investment in actively managed portfolio of money
market and debt securities

*Investors should consult their financial/tax advisors if in doubt about whether the scheme is suitable for them.

25
Product labelling
DSP Bond Fund
An open ended medium term
debt scheme investing in debt and money market
securities such that the Macaulay duration of the
portfolio is between 3 years and 4 years (please refer
page no. 32 under the section “Where will the Scheme
invest” in the SID for details on Macaulay’s Duration)
DSP 10Y G-Sec Fund
Open ended debt scheme investing in government
securities having a constant maturity of 10 years.
DSP Credit Risk Fund
An open ended debt scheme
predominantly investing in AA and below rated
corporate bonds (excluding AA+ rated corporate
bonds).
*Investors should consult their financial/tax advisors if in doubt about whether the scheme is suitable for them.
This Scheme is suitable for investors who are seeking*
•Income over a medium-term investment horizon
•Investment in money market and debt securities
This Scheme is suitable for investors who are seeking*
•Income over a long-term investment horizon
• Investment in Government securities such that the
Macaulay duration of the portfolio is similar to
the 10 Years benchmark government security
This Scheme is suitable for investors who are seeking*
•Income over a medium-term to long term investment
horizon
•Investment predominantly in corporate bonds which are
AA and below rated instruments
26
#INVESTFORGOOD