Missing Portfolio Centrepiece Allocate To Debt Mutual Funds Hsbc Mf Cio Explains Fixed Income

TITLE: Missing Portfolio Centrepiece? Allocate to Debt Mutual Funds | HSBC MF CIO Explains Fixed Income CHANNEL: Mirae Asset Sharekhan DATE: 2026-05-31 ---TRANSCRIPT--- A typical investor will end up being 30%, 35%, 40% taxation. It eats up so much of what you make. You’re not even beating inflation in majority of the products.

So, you’re filling a gap over here. I would look at it like a jigsaw puzzle where the center piece is missing. Our idea is to have a product which beats inflation [music] handsomely and can become a part of your core asset allocation. That’s really our simple pitch. Welcome to part two of my deep dive with Mr. Sriram Ramanathan, CIO of fixed income at HSBC Mutual Fund, where we’ll unpack the entire world of fixed income mutual funds. [music] Thank you for joining us today, Mr. Sriram. I’m really glad to have you here today. I have a question that’s specific to HSBC Mutual Fund and the way that you construct these mutual fund portfolios because let’s say an investor is interested in maybe a debt mutual fund with HSBC Mutual Fund. So, can you tell me how your mutual fund portfolios are constructed? See, I I think first of all, mutual funds in general, especially debt mutual funds, the good part is all the SEBI changes that have happened over the years have made it fairly [music] clear in terms of the risk return profiles of each category. So, you have each category that is for if you’re if you’re looking for, let’s say, very temporary deployment like a a substitute for a savings account or thing, you have products like your liquid funds, your money market funds, your ultra short low duration funds, which are more for shorter duration horizons where your volatility is much less. And then, but if you’re looking at 1-year, 2-year, 3-year kind of [music] investment horizons, that’s where all your short duration corporate bond funds, those kind of funds really come into play. Or your medium duration funds, [music] your credit risk funds, gilt funds. So, the laddering of portfolios from a SEBI categorization perspective is being fine-tuned in such a way that it’s relatively much more easier now for a retail investor to say, “Okay, what is my investment horizon?” Let’s say typically 1 to 3 years, then it means that you can look at the products like short duration corporate bond fund, gilt fund, etc. Second thing is what is my risk appetite? Am I Do I want a very safe product? So, accordingly then you choose a one with a relatively lower duration. If I want to play, like I said, on the longer duration more volatility, but also more opportunity to make money, that’s when [music] you choose a dynamic bond fund or a gilt fund, for example. If I want to play credit and, you know, earn a much higher accrual, that’s when you get into, let’s say, a medium duration or a credit risk fund. So, so that kind of categorization has made it much easier from a SEBI perspective. As far as HSBC is concerned, I think our core principles, I would say, one of them is in terms of being true to label. And by that, what we mean is a lot of our products, a majority of our products are meant for, typically, let’s say, a more conservative investor mindset. Okay. From especially from a credit perspective. So, if you look at our short duration funds or corporate bond funds or banking PSU funds, those are all very, very high credit quality, typically entirely 100% triple-A kind of portfolios. Okay. We don’t try and mess around with those. We keep them very clean and neat. But at the same time, we have products where we play credit, which is our credit risk fund or a medium duration fund. So, so that investors are very clear that if you get into an HSBC short duration, you know, it’s a pristine 100% triple-A portfolio, let’s say, negligible risk of defaults and all that. But we within that, we play duration in those funds. And that’s our main alpha or source of alpha that we look to target. But if you come into an HSBC credit risk fund or an HSBC medium duration fund, very clearly we’re going to play credits, which means by credits I mean the non-triple-A segment, right? Wherein you get into a double-A rated paper or a single A rated paper to earn the extra yield. Okay. That comes with analysis at our end, but it also comes with the reward of earning a higher yield. So, so those are the kind of products. So, that’s I would say number one thing that we look at. Second thing I would say is in terms of the team. Now, we have a very strong investment team. For example, in my fixed income team we have 12 people. We have a three-person credit team. We have three people on the dealing side. Four of us are portfolio managers, and we also have a microeconomist within the team. So, it’s a well-resourced, good team. All of them fairly well experienced. But, it also means that an investor can be rest assured that there’s a lot of thought and work that goes behind at the back end [music] when we manage, you know, investors’ money, which is hard-earned money that we get to manage. So, that I would say is the is a second key thing. Third thing is, I think our endeavor is whenever market opportunities arise to be able to come up with interesting products, right? Which makes sense. [music] And you know, which is where something like an SIF, for example, the specialized investment fund that has come about, that gives you the great opportunity as HSBC to come with something with a difference. So, that I would say product positioning [music] is the third thing that I would analyze. So, that I would put it out there. So, like I said, true to label, very clearly stick to what we have committed to and through ups and downs. Second thing, I think it’s a well-experienced [music] team on the back end, and well-resourced as well. And thirdly, like I said, products and product innovation. The whole objective is finally is to meet an investor’s investment [music] gap. That’s how we look at from a product perspective. Okay, so that sounds like quite a transparent process. And also, I’m intrigued by your mention of SIF. So, it’s relatively new, and a lot of investors are still understanding what it is. So, can you tell me what this product is about? I think it’s I think it’s a fantastic product that has been enabled because of the SEBI regulations. I think what these specialized investment fund just to simplify it for our you know viewers over here, what SEBI did is you have on the one side you have mutual funds which are obviously there’s no minimum threshold 500 rupees a minimum threshold daily NAV products very tight in terms of the do’s and don’ts regulatory framework etc. and very transparent, right? And on the other side you had for the ultra HNI’s high net worth individuals and HNI’s you have products in the portfolio management services PMS and AIFs alternate investment funds. So those are typically having thresholds of 50 lakhs or 1 crore minimum ticket size who had the benefit of getting into products which are more sophisticated. Which you know which can do a lot more in terms of portfolio flexibility from a [music] fund manager perspective, but you didn’t have anything in between. I think what SEBI has tried to do is come out with this specialized investment fund category to try and make it the best of both worlds wherein it is still part of the mutual fund regulatory landscape. So it means it adheres to all your transparency requirements NAV pricing everything the kind of audits that SEBI has, but at the same time they’ve enabled a lot more flexibility in terms of product innovation and portfolio management. Okay. And that’s where the SIF really sits in. So I think it’s going to see a huge number of products come out already. I think we have seen [music] some nine or 10 of them getting launched and the whole idea is to be able to while a lot of investors are very familiar with your typical debt fixed income mutual funds or equity large cap small cap all of these categories are fairly well known. SIFs really are going to come up with a more innovative play. Oh. Like so for for example you have seen a lot of relatively lower volatility equity oriented plays. At HSBC for example we are looking at a completely different kind of a positioning for a SIF more like close to a fixed income like product in the hybrid long short category. The the clear thing is that and and that’s one of the key things. This category enjoys very good tax benefits. For example, the hybrid long short category, it enjoys 12 and 1/2% taxation. And in that, if you’re able to get a a product with relatively lower sensitivity to equity markets [music] and lower volatility, more like a fixed income like product, um that becomes one of the very few products to actually have this kind of tax benefit for a fixed income like product, right? Cuz otherwise, if you see whether it’s FDs, fixed deposits, whether it’s bonds, whether it’s AIFs, all of them are marginal taxation, which means a typical investor will end up paying 30%, 35%, 40% taxation, which is a lot. It eats up so much of your what you make, so you you might get into a let’s say even a 12% yielding AIF, for example, but what you get in hand is like 7 and 1/2, 8%. Yeah. But in that same thing, if you would for for HSBC, what we are doing in our Red Hex Hybrid Long Short Fund is basically having a fixed income oriented product which enjoys this kind of amazing taxation, but at the same time, at the end of it on a post-tax basis, really leaves with a very attractive yield from an investor’s perspective. And that’s a big gap if you look at from any investor’s asset allocation as of today. So, as I was mentioning, the HSBC Red Hex the the Red Hex Hybrid Long Short SIF by HSBC Mutual Fund tries to [music] really place itself into this core asset allocation gap in a way. Mhm. What’s really been happening is about 4 5 years back, the tax changes came into effect. [music] Uh most of the fixed income or debt kind of products all went into marginal taxation. So, automatically investors investing [music] uh behaviors changed. Mhm. A lot of that core allocation started going into hybrid funds or into arbitrage funds or into Cat 2 AIFs for the HNIs, ultra [music] Um leaving this gaping hole of a core simple, less volatile, but good yielding component in their asset allocation. And which is what when markets turn volatile like they have in the March-April period, suddenly you realize that hey, even your hybrid funds are fairly volatile because they they have varying degrees of equity component. And as equity moves up and down, what you thought is actually a no lesser volatile product also exhibits volatility. Uh so, what we are missing is that kind of a product. And for us, that’s where really our product fits in. And it’s it’s uh there are not too many alternatives available. So, it really gives us a fantastic ability to be able to talk about it, which is why we are very excited about this product. And yeah, we’re seeing a lot of people really appreciate the fact that for many years people now have not allocated into a more fixed income-like product. Oh. Because of the tax advantages and because of the unattractive returns because you’re not even beating inflation in majority of the products. With this, our idea is to have a product which beats inflation handsomely and can become a part of your core asset allocation. That’s really our simple pitch as far as the Red Axe Hybrid Long Short Fund is concerned. Oh, nice. So, you’re filling a gap over here. Yeah, yeah, absolutely. I would look at it like a jigsaw puzzle where the center piece is missing. And hopefully this becomes a center piece that’s really that makes the overall investment jigsaw complete for an investor. So, that sounds like a really smart strategy. And now I have a question regarding risk. How do you manage risk in let’s say these products and also other fixed income mutual funds that you have? a from a fixed income mutual fund perspective or a debt mutual fund perspective, there are typically three main risks that you are one is referring to. One is of course liquidity risk, which basically means that if there are redemptions, can the fund manager be able to generate liquidity by selling the assets and paying off. The good thing like I said, at least at HSBC our funds are very true to label, which means majority of our funds are very high quality, very triple A oriented, which means liquidity risk we manage, I would say, very conservatively. Of course, that comes with the fact that the yields accordingly are also reflecting the triple A universe, and we really use the interest rate risk component to be able to deliver alpha in those funds. Separately, we also have, like I said, the range of funds which are credit oriented, right? Like a credit risk fund or a medium duration fund. That way we clearly take credit risk. So, like I said, it’s liquidity risk, interest rate risk, and credit risk. These are the three components. Over there, we really try to take a measured amount of credit risk and reduce our interest rate risk by meaningfully over there. Liquidity, of course, with all the SEBI changes, we manage fairly well. [music] So, this is the way we kind of manage each of these three components. As far as the SIF Red X Hybrid Long Short as I would concern, I think it’s a very beautiful package of when you consider all these three risk elements together. Our overall interest rate risk is fairly marginal because we are looking at a duration profile of 1 to 1 and 1/2 years. If your duration is relatively low, your interest rate volatility also is relatively low. So, that’s the way we are positioning this fund. It’s a relatively low interest rate risk product. Second, [music] we are taking a measured amount of credit risk in this fund with the intention that we want to make sure the yield of the fund is reasonably good so that the investors make decent returns on it. So, which is where we are taking a I would say a moderate credit risk approach in this space. Third risk from a liquidity perspective, the way we are managing in this fund is that 50% of our portfolio is really allocated to arbitrage and triple A bonds, whereas the remaining 50% really focuses on the yield pick up or the credit play. So, that ensures that at any point in time, 50% of my portfolio is always liquid. So, liquidity risk is fairly well taken care of. So, which is where I think it’s it’s a good package wherein liquidity risk, interest rate risk, and credit risk are put together in a in a balanced way at the end of it to make sure that the product is sustainable as it grows in scale and size, but it is also able to deliver the return [music] expectations that an investor has. Like I said, especially from their core asset allocation. And which is why we have kept the equity market sensitivity in this product almost minimal or negligible. Oh, okay. It’s a fixed income oriented product so that people don’t have to worry that hey, today markets are expected to tank over the next [music] 2-3 weeks by X amount. While a lot of your equity oriented portfolio obviously will reflect that risk, this kind of an allocation in portfolio is a lot more steadier because it’s there’s very little sensitivity to equity markets. So that that’s how the really the product gets positioned. Okay. [music] So, is this something that even aggressive investors can primarily equity investors can also consider as part of their portfolio? Um absolutely. Like I said, the good part that makes the product really attractive is the taxation. It’s really packaged as 12 and 1/2% kind of a taxation. This [music] capital gains taxation, which on a on a pre-tax basis makes the returns actually fairly into double well into double digits. So, while of course equity investors would typically expect maybe mid-teens or whatever in terms of the expected returns or higher, this really belongs to their core allocation where you don’t want volatility from global market events or Indian equity market volatility to impact your entire portfolio. So, even an equity investor finally has some need for some part of their portfolio to be stable. In the old days in the in the ’90s and 2000s we used to have a lot of money in our FDs. That’s stopped because FDs are so unattractive after you know that’s or that’s reduced. I won’t say stopped, it just reduced to a minimum. Then it was debt mutual funds and and credit as well as all that. But then 2023 saw the whole tax changes which took away the whole tax benefit. So, money again not much money gets invested into that. This kind of a product gives you a fixed income oriented product with a tax benefit. And that’s really makes the overall appeal of the product, whether it’s an equity oriented aggressive investor or whether it’s a more a person looking for stable returns, etc. I think I think like I said the the key message is again the same. It addresses a vital gap in one’s asset allocation. And there are not too many products that can fill in this kind of a gap and we are very excited that this product is able to really meet that kind of an expectation. [music] All right. So, can an investor also consider some of the other fixed income mutual funds that you have? And how should they allocate it in their portfolio? I think like I said, the initially we when we spoke about the various categories, I think one of the places where you know, retail investors hopefully get more and more used to having mutual funds or fixed income mutual funds is in their liquidity management. There’s a lot of money either is in their savings account or sometimes just lying around in shorter FDs, which is very sub-optimal, right? And and if you lock into a longer FD, then the problem is you don’t get liquidity when you suddenly want it because if you if you break the FD, you get penal rate, which is much lower. Products like liquid mutual funds, ultra short duration, money market funds are ideal for these kind of investors. Even for example, a low duration fund is perfect because the interest rate risk are relatively low. You don’t see that much volatility, but every day that you remain invested, you earn a reasonable return. And suddenly after 6 months, you need the money, it’s not like breaking an FD. You just have to put in a redemption, you get money pretty much the next day. So, I think the whole ease of doing applying into funds, ease of redemption, everything is online, everything is click of a button, means that people hopefully get more and more used to making better use of their temporary money, which is money that you require on an ongoing basis. The second is of course their investment goals. And that’s where the whole focus again the the phrase that we all love to talk about asset allocation, medium-term asset allocation comes into play. That’s where I think one thing that has happened over the years is gradually more and more allocations of course and maybe rightfully so has gotten into the equity markets and into hybrid funds, various things. And from time to time it’s good for investors to just sit back and reassess. Am I having enough exposure? In which case or if it is less than obviously one needs to allocate it more. But the flip side is is too much of my portfolio sensitive [music] or too sensitive to equity markets? And then because of that I’m getting sleepless nights because of which no today markets are down, my entire portfolio is down. In which case it means that there is a missing element which is your fixed income element. And that’s where again core fixed income funds of HSBC come into play whether it’s a short duration corporate bond fund. These are core products, very high credit quality. So an investor [music] needs to be can be rest assured that credit quality wise these are all 100% triple A funds and they give stable returns overall. No typical yields for bonds of two year or three year triple A bonds are somewhere around seven and a half, 7.75 which are very attractive levels compared to where they have been in the past. So that’s the other way to look at some of the funds. Third category I would say is for somebody who who understands bond markets and who wants to take risk by playing the longer duration play. That’s where I would say one needs to be a little bit careful. One needs to be aware that similar to how equity prices go up and down, if you buy a 30 year government bond, they are also reasonably volatile. They do move up and down. So it matters in terms of the timing of entry, what kind of an investment horizon you have. You need to have a long enough investment horizon to be able to play out those kind of strategies. That’s where our gilt fund, [music] dynamic bond fund, those kind of funds really come into play from HSBC’s side. So those are the three layers on the traditional mutual fund side and of course the Red X [music] we have spoken about the hybrid long short SIF quite a bit. All right. So, thank you for that explanation because I think maybe a lot of equity investors tend to overlook these the fixed income aspect of their investment. So, now I’d like to ask you when it comes to HSBC mutual funds role in the near future, how do you see the role evolving with India’s growth story? Because India as an emerging economy is quite promising [music] in a way. Correct. No, I think I think we have a huge role to play whether it’s HSBC bank over here in India or whether it is us as a mutual fund. I think for us globally we have made it very clear that India is one of our key growth markets. And that’s been [music] the case for many many years. I think for HSBC globally there are a few priority markets and India very clearly is one of them. Also, I think the good part is being one of the few global banks over here especially in the asset management space. Look at the mutual fund space there are very few global managers still left, right? And HSBC is proud to be one of those entities over here. In fact, we bought L&T mutual fund about four years back to show that you know the the the seriousness that we have about presence in the Indian markets. I think the good part is it gives us an amazing opportunity to be able to leverage on experience global [music] experience and bring it onshore but also the reverse, right? To pick take our products and present it globally. So, whether it’s been on the equity side, I think we have had a few fantastic offshore interest in some of our products where we have seen significant sums of money coming in from places like Japan, from other places into India growth kind of stories. And in even on the fixed income side, we have one of [music] the larger India bond funds which invest from offshore into the Indian bond markets. That’s that’s our way of pitching our products to global investors. Similarly, the reverse. I think we have an amazing large bouquet of global funds. And with [music] Indian investors, especially now, more and more realizing the need to [music] maybe diversify on a country basis as well because a lot of us so far have majority of our investments in India either on the equity side or on various other asset classes, etc. Increasingly, the need is that, “Hey, I need to have something outside.” And now with GIFT City and the way that is getting propagated, etc., I think you’re going to see a lot of products being made available, be it global emerging market equities, global emerging market bonds, maybe China technology funds, various You’re going to see an amazing diaspora of funds being made available to Indian investors. [music] And I think for for us, that’s a huge opportunity as HSBC to be able to present our bouquet of funds over here. So, we see a lot of excitement on both sides, whether it’s presenting India to the world either on equity or on fixed income side, which you’re already doing very actively, or in terms of being able to present our global offerings to Indian investors. I think being one of the few such entities present over here, I think that gives us an amazing opportunity to be able to do that. Okay. Thank you so much for explaining your investment philosophy. This was a really insightful discussion, and I’m sure people will appreciate it. I enjoyed the conversation a lot. Thank you so much for having me. Mutual fund investments are subject to market risk. Read all scheme-related documents carefully [music] before investing.