DSP Pension Fund – Fixed Income Investment Philosophy

Fixed income is often called the quiet engine of financial markets. It doesn’t grab headlines like other asset classes, nor does it swing wildly with sentiment. But beneath the surface, it is powered by some of the most fundamental forces in an economy — interest rates, inflation, growth, public finance, liquidity and systemic stability.

At DSP Pension Fund, we approach with the belief that clarity of thought, respect for risk and understanding of macroeconomic structure are valuable for fixed income investing.

We see fixed income not as a product, but as a discipline — one that blends economics, probabilities, and prudent judgement. And because our investors entrust us with their retirement savings, our philosophy is anchored in one central principle: protect their capital first, grow it with consistency & stay aligned with the realities of an ever-changing world.

The philosophy begins with the system, not the individual instruments

Fixed income markets are shaped far more by the framework of the economy than by individual instruments. Before we look at a bond, we understand the system it exists in:
• How policy authorities think
• How liquidity circulates
• How inflation behaves
• How economy grows
• How governments finance themselves
• How external conditions influence domestic rates

A bond’s price is simply the end expression of these forces. Our framework therefore starts with a deep study of the environment — the structure within which all fixed income instruments operate.
We do not chase returns; we pursue understanding. Returns are the outcome.

Interest rates are not numbers — They are narratives

Every yield curve tells a story. Of confidence, of anxiety, of expectations, of uncertainty. We treat the curve as a living narrative of economic conditions, not merely a term structure to be exploited.

In fixed income, the direction of travel often matters more than the destination. What matters to us is not whether a bond is at 7% or 7.5%, but what economic forces are converging to make it so and what that says about the future path of stability and risk.

We give primacy to understanding the drivers behind rates rather than the rates themselves.

Monetary Policy: The Anchor of the Bond World

Central banks influence fixed income more profoundly than any other participant. Their voice carries weight not because of the rate they set today, but because of the framework they operate with.
We study monetary policy with the mindset of an economist — not to guess policy decisions, but to understand:
• How the RBI interprets inflation dynamics
• How it internalises growth conditions
• How it assesses liquidity
• How it reacts to global disruptions

We believe that a fixed income portfolio manager must think like a policymaker, not a trader. Policy is not noise to us; it is the architecture.

Fiscal responsibility and public borrowing shape the landscape

In fixed income, the government is not just another issuer — it is the anchor around which the entire interest-rate ecosystem is built. The government’s fiscal stance influences the environment in two foundational ways: by shaping the supply of bonds and by signalling the credibility and stability of the system within which all other borrowers operate.

We view fiscal policy as a structural lens rather than a forecast-driven variable. The manner in which a government manages spending, revenue and borrowing provides enduring cues about the health of the macro framework.

Fiscal dynamics are not viewed as triggers for tactical responses, but as the structural architecture that defines the rhythm of the fixed income universe. They influence how trust is formed in the market, how risk is perceived across maturities and how the broader investor ecosystem behaves through cycles.

We seek to interpret fiscal signals as enduring indicators of the market’s long-term balance rather than as short-term directives.

Risk management is not a process, it is the foundation itself

In fixed income, the asymmetry of outcomes is unforgiving. Losses from adverse events can far outweigh gains from yield pick-up. Hence, we treat risk not as a secondary concern but as the core of the philosophy.

For us, risk management is not a set of guidelines, a compliance checklist or a model-driven exercise.
It is a mindset — one that examines scenarios, tolerances, liquidity conditions and the resilience of cash flows before any investment is considered.

We believe that the best way to earn returns in fixed income is to avoid the avoidable.
Every rupee preserved in a difficult environment is a rupee compounded in the next.

Cash is a form of safety

In our portfolios, cash is not merely a convenience — it is a safeguard. Markets change, data evolves and shocks occur without warning. Maintaining cash ensures that we remain responsive without being forced into decisions.
We value cash not as a cost, but as a strategic asset. It gives us the freedom to navigate uncertainty with composure, ensuring the portfolio remains resilient even when market depth evaporates.

Global conditions influence domestic stability

Even though India is primarily a domestic bond market, global macro conditions shape local outcomes through trade flows, currency stability, commodity prices and investment sentiment.

We study global yields, monetary cycles, geopolitical tensions and commodity dynamics to understand their potential second-order effects on domestic conditions.

Our approach is not globally reactive, but globally informed. We recognize that in fixed income, external shocks often equally matter as the internal events.

Credit: The intersection of economics and business reality

Credit in fixed income sits at the crossroads of macro conditions and company-level realities. We focus on understanding the long-term stability of an issuer through a few essential dimensions:
• Economic & Industry Context: We assess how an issuer fits within its broader environment, recognizing that sectoral trends, regulatory shifts and economic cycles shape long-term business strength
• Leadership & Governance Quality: Promoter integrity, management behavior and governance discipline provide important signals about an issuer’s reliability and financial intent
• Business Model Strength: The durability of the operating model, market position, competitive advantages and strategic clarity forms the backbone of credit resilience.
• Financial Foundations: Cash-flow patterns, leverage, balance-sheet prudence and overall financial coherence help us understand the true stability of the enterprise.
• Market Standing & Access to Capital: The ability to raise funds, refinance smoothly and retain investor confidence reflects a company’s credibility within the financial ecosystem.

Credit, for us, is not just analysis, it is judgement built on a balanced understanding of both the economic backdrop and the internal fabric of each business

Flexibility within a disciplined framework

We recognize that the real world rarely behaves in linear patterns. Inflation can surprise, global yields can shift abruptly, fiscal positions can evolve and liquidity can tighten unexpectedly.
We therefore emphasize on flexibility within a structured process. We maintain the integrity of our framework but allow space for adaptation — not because we chase markets, but because we respect their complexity.
This balance ensures that portfolios remain both coherent and responsive.

In Essence

Our fixed income investment approach can be distilled into a few enduring beliefs:
• Understand the system before the instrument
• Respect risk more than returns
• Let frameworks guide decisions
• Value cash position as a strategic strength
• Think like a policymaker, act like a fiduciary
• Stay macro-aware, credit-disciplined and stability-focused
• Protect capital relentlessly, compound it thoughtfully

Fixed income investing is about being most grounded in understanding and the most disciplined in execution.
At DSP Pension Fund, our philosophy reflects this commitment.
We aim to create portfolios that are not only economically sound, but structurally resilient — capable of serving our investors through calm cycles, volatile periods and everything in between.

Above all, our though process is simple:
Build stability. Preserve trust. Honor the responsibility entrusted to us.