Death of a good mutual fund: DSP BlackRock Treasury Bill Fund

So AMCs’ have started ringing in changes to fall in line with SEBI’s Mutual Fund Scheme Categorization. DSP Blackrock is the first to announce a change in fundamental attributes of several of its funds. As expected, a wonderful debt fund, DSP BlackRock Treasury Bill Fund, will cease to exist. Thanks to Khushroo T Satarawala for posting details on FB group, Asan Ideas for wealth.

The circular is dated Jan 8th 2018 and has the following exit option

As the above proposal is a change in Fundamental Attributes of the Scheme, … the existing unitholders under the Scheme are hereby given an option to exit, i.e. either redeem their investments or switch their investments to any other scheme of the Fund, within the 30 days exit period starting from January 16, 2018 till February 14, 2018 (both days inclusive and upto 3.00 pm on February 14, 2018) at applicable NAV, without payment of any exit load, by filing up the requisite transaction slip and submitting the same at any of our designated Official Points of Acceptance (list available on www. dspblackrock.com). If you have no objection to the proposed change, no action needs to be taken and it would be deemed that you have consented to the above change. The offer to exit from the Scheme is optional, at the discretion of the Unit Holder, and not compulsory. The Scheme will adopt the proposed change with effect from February 14, 2018. Thus, all the applications for redemptions/switch-outs received under the Scheme shall be processed at applicable NAV of the day of receipt of such redemption / switch request, without payment of any exit load, provided the same is received during the exit period of 30 days mentioned above.

Source: Change in Fundamental Attributes of DSP BlackRock Treasury Bill Fund

This is a snapshot of the circular:

DSPBR Change in Fundamental attribute

Let me focus on DSP BlackRock Treasury Bill Fund.

I love mutual funds which a narrow investment mandate.

The old mandate of this fund was:

The primary investment objective of the Scheme is to generate income through investment in a portfolio comprising of Treasury Bills and other Central Government Securities with a residual maturity less than or equal to 1 year. It is envisaged that the average maturity of this portfolio will not exceed 1 year. Investors with a short term investment horizon may select this scheme. The risk and return profile of this portfolio is expected to be commensurate with the investment pattern of the Scheme.

This fund could typically only invest is about 15% in short term deposits of banks (<=91 days) and rest was in short-term gilts. Therefore not only the credit risk small (often zero when then portfolio only had gilts), the interest rate risk was also minimal due to the short-term nature of the bond portfolio. In the old portfolio, the short-term gilts could not fall below 65%. This stipulation has now been removed.

This is the new investment mandate:

The primary investment objective of the Scheme is to generate income through investment in a portfolio comprising of money market instruments with maturity less than or equal to 1 year.

The new name will be: DSP BlackRock Savings Fund

The old fund could invest in over-night bonds and floating rate bonds. These made sure the interest rate risk was pretty small. The new fund’s interest rate profile has not changed much.

However, its credit risk profile has completely changed as it can now invest in commercial paper. It now wants to engage in stock lending (security lending for compensation) up to 20% of the portfolio. This, in my opinion, is an unnecessary credit risk as they themselves concede there is not enough such activity!

You can get the full list of where the new fund will invest from the link above.

From a fund with minimal interest rate risk and very low credit risk (much of which was guaranteed), the fund is being repackaged into one with minimal interest risk and minimal credit risk. Therefore, the fund loses its special status in my book and has become just another ultra short term fund. Its benchmark is CRISIL Liquid Index!! (yeah! let us choose something that is easier to beat!)

I am an investor should I exit?

There is no need to hit the panic button. You can stay put, but be aware of the additional risks before committing additional money. The same goes for new investors too.

This is the problem with debt mutual funds. They keep changing! sigh!

A good debt fund with a reasonably narrow investment mandate is dead. Change is here! Stay tuned! Thanks again to Khushroo T Satarawala for allowing me to share the above email snapshot.

5 thoughts on “Death of a good mutual fund: DSP BlackRock Treasury Bill Fund

  1. Pattu , For Investors who would like to invest in fund with highest quality credit ( ST GILT )with maturity less than 1 years and since this fund mandate has now changed would you recommend any other fund that can meet the narrow mandate of high credit and low maturity , Any recommendation as part of plumbline ?

    Thank You

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