Many investors regard debt instruments as a way to diversify their investment portfolio. Debt is a well-known asset class that provides stability and liquidity to a portfolio. However, with bank fixed deposits offering unattractive returns, fixed income investors have been exploring alternative higher-return options.

Debt mutual funds offer investors more flexibility without any lock-in period as compared to traditional investment options. It aims to generate suitable returns and serves as a tax efficient investment avenue. One of the alternatives in the debt fund space for investors with moderate risk appetite is Target maturity funds (TMFs). These are debt funds with a defined maturity that invest passively in the bonds constituting a particular index.

The debt-oriented Target Maturity Index Funds are passively managed investments in debt securities that aim to replicate the composition of the underlying index and have a specific maturity date. Target maturity funds offer predictable returns if you stay put until maturity.

ICICI Prudential Mutual Fund has rolled out ICICI Prudential PSU Bond plus SDL Bond Sep 2027 40:60 Index Fund. It is an open-ended target maturity Index Fund investing in the constituents of Nifty PSU Bond Plus SDL Sep 2027 40:60 Index.

On the launch of this fund Mr Chintan Haria, Head- Product Development & Strategy, ICICI Prudential AMC said, “For the benefit of our investors, we are adding a passive debt scheme to our debt bouquet. ICICI Prudential PSU Bond plus SDL Bond Sep 2027 40:60 Index Fund is a target maturity open ended fund which provides investors exposure to a portfolio of 8 PSU bonds issued by government owned entities and 20 SDLs issued by States/UTs. This is suitable for investors seeking exposure to a fixed income instrument and for investors having a medium-term investment horizon in line with the index’s maturity period.”

Table 1: Details of ICICI Prudential PSU Bond Plus SDL 40:60 Index Fund

Type An open-ended target maturity Index Fund investing in the constituents of Nifty PSU Bond Plus SDL Sep 2027 40:60 Index. Category Index Fund
Investment Objective The investment objective of the scheme is to track the Nifty PSU Bond Plus SDL Sep 2027 40:60 Index by investing in AAA rated PSU bonds and SDLs, maturing on or before Sep 2027, subject to tracking errors. However, there can be no assurance or guarantee that the investment objective of the Scheme will be achieved and the scheme does not assure or guarantee any returns.
Min. Investment Rs 1000/- and in multiples of Re 1 thereafter. Additional purchase Rs 500/- and in multiples of Re 1 thereafter. Face Value Rs 10/- per unit
SIP/STP/SWP Available
Plans
  • Direct
  • Regular
Options
  • Growth
  • Income Distribution cum Capital Withdrawal Option
Entry Load Not Applicable Exit Load
  • 0.15% of applicable Net Asset Value – If the amount sought to be redeemed or switch out within 30 days from allotment.
  • Nil – If the amount sought to be redeemed or switched out after 30 days from allotment
Fund Manager
  • Ms Chandni Gupta
  • Mr Anuj Tagra
Benchmark Index Nifty PSU Bond Plus SDL Sep 2027 40:60 Index
Issue Opens: September 16, 2021 Issue Closes: September 27, 2021

(Source: Scheme Information Document

The investment strategy for ICICI Prudential PSU Bond Plus SDL 40:60 Index Fund will be as follows:

ICICI Prudential PSU Bond Plus SDL 40:60 Index Fund will predominantly invest in Bonds issued by AAA-rated government owned entities and SDLs issued by states/UTs. The scheme is a target maturity date Index Fund.

The scheme follows a passively managed investment approach designed to track the performance of Nifty PSU Bond Plus SDL Sep 2027 40:60 Index, subject to tracking errors. Accordingly, the scheme will invest in AAA-rated PSU bonds and SDLs. In the portfolio, the proportion of investment into AAA-rated bonds issued by government-owned entities and State Development Loans (SDL) will be in the ratio of 40:60.

The endeavour is to follow the buy-and-hold investment strategy in which existing SDLs will be held till maturity unless sold to meet redemption requirements and payment of dividends. The portfolio of eligible securities invested by the scheme is expected to have, in aggregate, fundamental characteristics such as modified duration, weighted average maturity, aggregate credit ratings, aggregate Yield-to-Maturity (YTM), etc., along with other liquidity parameters in line with Nifty PSU Bond Plus SDL Sep 2027 40:60 Index.

The index methodology is computed using the total return methodology including price return and coupon return. The proportion of debt securities under the index is AAA-rated government owned entities – 40% and SDLs – 60%. Equal weight is allocated to each component (PSU/SDL) as on the weightage base date of the index.

The index will be reviewed every quarter and the weights of each issuer in the index will be capped at 15%.

About the benchmark

The Nifty PSU Bond Plus SDL Sep 2027 40:60 Index follows a target maturity structure with a maturity date of September 30, 2027. The index portfolio has 40% allocation to AAA-rated bonds issued by Government of India owned entities and the other 60% includes State Development Loans (SDLs) as on the base date of the index. All constituent bonds in the index mature during the six-month period ending September 30, 2027.

The index provides investors exposure to a portfolio of 8 PSU bonds issued by government owned entities and 20 SDLs issued by States/UTs. It seeks to measure the performance of portfolio of AAA-rated bonds issued by government owned entities and SDLs maturing during the six months period ending September 30, 2027.

The following is a list of the top constituents under the index by their current weightage:

List of the top constituents under the index by their current weightage

(Source: ICICI Pru PSU Bond Plus SDL 40:60 Index Fund PPT

Under normal circumstances, the asset allocation will be as under:

Table 2: Asset Allocation of ICICI Prudential PSU Bond Plus SDL 40:60 Index Fund

Instruments Indicative Allocation (% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
Bonds issued by Public Sector Undertakings (PSUs) forming part of the Bonds portion of Nifty PSU Bond Plus SDL Sep 2027 40:60 Index 95 100 Low to Medium
State Development Loans (SDLs) of State Government/UTs forming part of SDL portion of Nifty PSU Bond Plus SDL Sep 2027 40:60 Index 95 100 Low to Medium
Money Market instruments including cash and cash equivalents (Treasury Bills, Government Securities with residual maturity of up to 1 year and Tri-Party Repos)*@ 0 5 Low to Medium
Units of Debt schemes including ETFs 0 5 Low to Medium

*Money Market Instruments will include treasury bills and government securities having a residual maturity upto one year, Tri-Party Repos, Repo in government securities and treasury bills and any other like instruments as specified by the Reserve Bank of India from time to time.

@Excluding money in transit before deployment /Pay-out

(Source: Scheme Information Document

Who will manage ICICI Prudential PSU Bond Plus SDL 40:60 Index Fund?

Ms Chandni Gupta and Mr Anuj Tagra will be the dedicated fund managers for this scheme.

Ms Chandni Gupta is Fund Manager at ICICI Prudential Asset Management Co. Ltd. She is a Chartered Financial Analyst (USA) and BE (Information Technology) and has over 13 years of work experience. Prior to joining ICICI AMC, she was associated with Morgan Stanley Investment Management, HSBC Bank, and Standard Chartered Mutual Fund.

The other schemes Ms Gupta manages are ICICI Prudential Capital Protection Oriented FundsICICI Prudential Banking & PSU Debt FundICICI Prudential Multiple Yield Fund – Series 14 Plan A, ICICI Prudential Bond Fund, and ICICI Prudential Corporate Bond Fund.

Mr Anuj Tagra is Fund Manager – Fixed Income at ICICI Prudential Asset Management Co. Ltd. His qualification includes BBA (Honors) and MBA – Capital Markets and he has total work experience of around 12 years. Mr Anuj is associated with ICICI AMC since 2013 and prior to that, he has worked with Union Bank of India – Trader-Gsec and Fidelity Investments as Associate in operations.

The other schemes he manages are ICICI Prudential Corporate Bond FundICICI Prudential MultiAsset FundICICI Prudential Retirement FundICICI Prudential Constant Maturity Gilt FundICICI Prudential Long term Bond FundICICI Prudential All seasons Bond Fund, and ICICI Prudential Gilt Fund.

Fund Outlook – ICICI Prudential PSU Bond Plus SDL 40:60 Index Fund

ICICI Prudential PSU Bond Plus SDL 40:60 Index Fund is a passively managed debt index fund that aims to replicate the performance of the Nifty PSU Bond Plus SDL Sep 2027 40:60 Index.

The scheme seeks to invest in 8 AAA-rated PSU Bonds & 20 State Development Loans under the index that matures on September 30, 2027. It provides investors exposure to Government-backed instruments like PSUs & SDLs, allows investors to buy/sell as required without any lock-in period. It assists you to meet medium-term financial goals in line with the maturity period.

This scheme will provide investors with a great mix of stability and liquidity compared to direct investment in bonds. The target maturity approach offers investors the benefit to invest in individual bonds/SDLs passively through Debt mutual fund structure.

Being an index fund, this scheme will follow passive investment style and mitigate the fund manager’s role resulting in a lower expense ratio as compared to actively managed Debt mutual funds.

Although the investments in various high quality AAA-rated PSU bonds and SDLs comprising of the underlying index will diversify the portfolio risk and 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 seeking exposure to a fixed income instrument and having a medium-term investment horizon in line with the index’s maturity period. You must ensure to have a moderate risk profile to survive the volatility in the market.

This article first appeared on PersonalFN here


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