Debt investments are a necessary part of an investor’s asset allocation process in order to build a robust investment portfolio. Recently, it has been observed that Debt market have been volatile, with likelihood of rising interest rates in the coming years. Moreover, the Franklin Templeton fiasco in the past influenced investor sentiments against Debt funds and there was a dip seen in assets of credit risk fund category under Debt mutual funds. Thus, you should be vigilant while investing in Debt funds.
While investing in Debt funds investors have the option of choosing from actively managed Debt funds and Debt Exchanged Traded Funds (ETFs). Debt ETFs follow passive investment style with an aim to replicate an underlying index by invest in Debt securities making up the index in similar proportion. In India, Equity ETFs and Gold ETFs are the most common, but Debt ETFs are gaining traction and attracting a wide range of investors.
Notably, some fund houses have come up with Debt-oriented new fund offerings with low credit risk and interest rate risk and a target maturity plan. The target maturity funds offers investors with pre-defined maturity, predictable returns and liquidity benefit unlike investments in direct individual bonds. This could be an alternate for fixed deposit investments. Such Debt schemes would be ideal for investors with a holding period close to the target maturity of these funds, as well as those with a moderate to high risk tolerance to withstand the intermittent volatility of the bond yield curve before the schemes maturity.
Axis Mutual Fund has launched Axis AAA Bond Plus SDL ETF – 2026 Maturity, it is an open-ended Target Maturity Exchange Traded Fund predominantly investing in constituents of Nifty AAA Bond Plus SDL Apr 2026 50:50 Index.
On the launch of this fund Mr Chandresh Kumar Nigam, MD & CEO of Axis Asset Management Company Ltd. said, “We want to develop, introduce and provide investors with the products that are relevant in the current context. Accordingly, we recognise the need to offer investors a choice of strategies including robust passive products across all asset classes. The launch of Axis AAA Bond Plus SDL ETF – 2026 Maturity continues to take forward our endeavour to build up our passive product suite over time by offering investors an attractive debt strategy within the passive space.”
Table 1: Details of Axis AAA Bond Plus SDL ETF – 2026 Maturity
|An open-ended Target Maturity Exchange Traded Fund predominantly investing in constituents of Nifty AAA Bond Plus SDL Apr 2026 50:50 Index.
|Exchange Traded Fund
|To replicate Nifty AAA Bond Plus SDL Apr 2026 50:50 Index by investing in bonds of issuers rated AAA and state development loans (SDL), subject to tracking errors. However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved.
|Rs 5000/- and in multiples of Re 1 thereafter.
|Rs 10/- per unit
|Mr Aditya Pagaria
|Nifty AAA Bond Plus SDL Apr 2026 50:50 Index.
|April 23, 2021
|May 07, 2021
(Source: Scheme Information Document)
What will be the Investment Strategy for Axis AAA Bond Plus SDL ETF – 2026 Maturity?
This scheme will be predominantly invest its corpus in high-quality Debt Instruments comprising of Nifty AAA Bond Plus SDL Apr 2026 50:50 Index following a passive management strategy. The endeavour is to track the Nifty AAA Bond Plus SDL Apr 2026 50:50 Index with the objective of optimizing returns.
The Scheme will follow Buy and Hold investment strategy in which Debt instruments issued by AAA rated corporate borrowers & state development loans will be held till maturity with a 50:50 exposure unless sold for meeting redemptions/rebalancing. The target maturity approach is considered due to the yield curve normalization, where short term debt instruments are providing better yields than long-term debt instruments with same credit quality. This has led to a significant retracement in the 5-year space, recently there has been a run up in 5-year AAA bond yields and 3-year AAA bond yields (In bps) and they are trading at 10-year highs.
For investors, the scheme will build a well-diversified Debt portfolio and look for opportunities from credit spreads among the AAA corporate bonds and state development loans (SDLs). The scheme will attempt to replicate the index completely. In case, it fails to replicate the index the Fund Manager may invest in other issuances within the limits specified and subject to conditions laid down by SEBI circular dated November 29, 2019 as amended from time to time.
About the benchmark
Nifty AAA Bond Plus SDL Apr 2026 50:50 Index seeks to measure the performance of portfolio of AAA rated bonds issued by government owned entities, Housing Finance Companies (HFC), Corporates and State Development Loans (SDLs) maturing between May 01, 2025 to April 30, 2026.
The index will be managed by NSE Indices limited and it will be rebalanced every quarter. The benchmark will have an equal allocation to the AAA rated corporate borrowers & state development loans.
The following is list of constituents under the index as of April 12, 2021:
Apart from investing 95% of its assets in Debt Instruments comprising of Nifty AAA Bond Plus SDL Apr 2026 50:50 Index, this scheme will also invest up to 5% of its assets in Money Market Instruments in order to balance the liquidity requirements.
Under normal circumstances, asset allocation will be as under:
Table 2: Axis AAA Bond Plus SDL ETF – 2026 Maturity
|Indicative Allocation (% of net assets)
|Debt Instruments comprising of Nifty AAA Bond Plus SDL Apr 2026 50:50 Index
|Low to Medium
|Money Market Instruments
|Low to Medium
(Source: Scheme Information Document)
Who will manage Axis AAA Bond Plus SDL ETF – 2026 Maturity?
Mr Aditya Pagaria will be the dedicated fund manager for this scheme.
Mr Aditya Pagaria is Fund Manager – Fixed Income at Axis Asset Management Company Ltd. and he has over 13 years of experience in financial services industry. Prior to this, he was associated with ICICI Prudential Asset Management Company Ltd. as Manager Support – Fixed Income and later as Fund Manager – Fixed Income.
Mr Aditya is Bachelor in Management Studies and has Post Graduate Diploma in Business Management. Currently other schemes managed by him are; Axis Treasury Advantage Fund, Axis Liquid Fund, Axis Equity Advantage Fund – Series 1 and Series 2, Axis Banking & PSU Debt Fund , Axis Ultra Short Term Fund, Axis Overnight Fund, Axis Money Market Fund and Axis Floater Fund.
Fund Outlook – Axis AAA Bond Plus SDL ETF – 2026 Maturity
Axis AAA Bond Plus SDL ETF – 2026 Maturity will invest in high-quality Debt instruments comprising of Nifty AAA Bond Plus SDL Apr 2026 50:50 Index and offers investors high credit quality with a diversified Debt portfolio.
The fund house believes that the Debt markets have been volatile recently, the yield curve is leading to normalization and the yield scenario in 5-year space seems interesting. The yield curve is providing a significant opportunity in the 5year spread, the 5year bonds are trading at levels similar to comparable 10-year instruments.
This scheme would provide investors with a great mix of stability and liquidity to investors when compared to direct investment in bonds. The target maturity approach enables investors the benefit to invest in individual bonds through Debt mutual fund structure. As this scheme will follow passive investment style, it reduces the fund manager’s role resulting in low expense ratio as compared to actively managed Debt mutual funds.
The investments in high quality AAA rated corporate bonds and SDLs comprising of the underlying index will make the scheme less prone to credit risk. However, it may still carry some credit risk and interest rate risk depending on the instruments in the portfolio and dynamic market conditions.
This scheme is suitable for investors with moderately high risk profile looking to build their Debt portfolio and invest with a 5-year investment horizon.
This article first appeared on PersonalFN here