Investors seeking to build a fixed income investment portfolio can now consider investing in passively managed debt mutual funds with the target maturity approach that will provide stability and liquidity by investing in AAA rated government backed instruments at pre-defined maturity tenure/s.
Passively managed Target maturity index funds tracking the CPSE/PSU/AAA bond indices within the three to five year duration can be an attractive investment option at this juncture. When interest rates rise, debt mutual funds that invest in the short duration segment experience low mark-to-market impact.
SBI Mutual Fund has launched SBI CPSE Bond Plus SDL Sep 2026 50:50 Index Fund; an open-ended Target Maturity Index Fund investing in constituents of Nifty CPSE Bond Plus SDL Sep 2026 50:50 Index.
On the launch of this fund, Mr Rajeev Radhakrishnan, CIO – Fixed Income at SBIFML said, “The fund provides an opportunity to gain exposure in CPSE Bonds & SDL, with an added benefit of liquidity. The scheme has a pre-defined maturity of September 30, 2026, enabling the scheme to invest in securities maturing around the maturity date of the scheme. Thus, minimizing reinvestment risk. The duration of underlying portfolio reduces as the scheme nears maturity, given that the scheme would follow a defined maturity investment i.e., September 2026. Therefore, if held till maturity, there is minimal duration risk associated with the investment.”
Table 1: Details of SBI CPSE Bond Plus SDL Sep 2026 50:50 Index Fund
|An open-ended Target Maturity Index Fund investing in constituents of Nifty CPSE Bond Plus SDL Sep 2026 50:50 Index. A relatively high interest rate risk and relatively low credit risk.
|The investment objective of the scheme is to provide returns that closely correspond to the total returns of the securities as represented by the underlying index, subject to tracking error. However, there is no guarantee or assurance that the investment objective of the scheme will be achieved.
|Rs 5,000 and in multiples of Re 1 thereafter. Additional Purchase Rs 1000 and in multiples of Re 1 thereafter.
|Rs 10/- per unit
|Mr Dinesh Ahuja
|Nifty CPSE Bond Plus SDL Sep 2026 50:50 Index
|January 03, 2022
|January 17, 2022
(Source: Scheme Information Document)
The investment strategy for SBI CPSE Bond Plus SDL Sep 2026 50:50 Index Fund will be as follows:
SBI CPSE Bond Plus SDL Sep 2026 50:50 Index Fund will track Nifty CPSE Bond Plus SDL Sep 2026 50:50 Index and will use a “passive” or indexing approach to endeavour to achieve scheme’s investment objective.
Unlike other funds, the scheme will not try to “beat” the market it tracks and not seek temporary defensive positions when the market declines or appears overvalued. The fund house does not make any judgments about the investment merit of a particular security nor will it attempt to apply any economic, financial, or market analysis. Indexing eliminates active management risks with regard to over/underperformance vis-a-vis a benchmark.
Since the scheme is an index fund, the scheme will only invest in the securities constituting the underlying index. However, under certain circumstances the scheme may temporarily hold securities that are not part of the index. For example, including but not limited to the below situations:
1. Post-allotment of the scheme until full deployment is achieved.
2. The portfolio may hold securities not included in the respective underlying index as a result of certain changes in the underlying index such as, reconstitution, addition, deletion, etc.
The fund manager would endeavour to rebalance the portfolio in order to mirror the index. However, there may be a short period where the constituents of the portfolio may differ from that of the underlying index. The scheme intends to maintain a low tracking error by actively managing the portfolio in line with the index.
The scheme may also invest a portion of its portfolio in Government securities maturing on or before the maturity date of the Scheme, Repo in government securities, and TREPS to manage the liquidity requirement. In case of any deviation from the asset allocation pattern, the portfolio to be rebalanced by the fund house within 7 days from the date of said deviation.
Under the normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation for SBI CPSE Bond Plus SDL Sep 2026 50:50 Index Fund
|Indicative Allocation (% of net assets)
|Securities# covered by Nifty CPSE Bond Plus SDL SEP 2026 50:50 Index
|Medium to High
|Government Securities maturing on or before maturity date of the Scheme, Money Market instruments, including Triparty Repo and units of liquid mutual fund*
(Source: Scheme Information Document)
About the benchmark
Nifty CPSE Bond Plus SDL Sep 2026 50:50 Index seeks to measure the performance of its portfolio of AAA rated bonds issued by government owned entities & SDLs maturing during the twelve months period ending 30 Sep, 2026. The index is computed using the total return methodology, including price return and coupon return. The index contains 2 equal weighted components as on the base date of index.
1) CPSE Bonds component: 11 Bonds issued by top 11 AAA rated government owned entities ranked based on composite score of liquidity score and outstanding amount score maturing during the twelve months period ending 30 Sep, 2026.
2) SDL component: 7 SDLs issued by top 7 states/UTs selected based on their outstanding amount maturing during the twelve months period ending 30 Sep, 2026.
Who will manage SBI CPSE Bond Plus SDL Sep 2026 50:50 Index Fund?
Mr Dinesh Ahuja will be the dedicated fund manager for this scheme.
Mr Dinesh Ahuja is a commerce graduate (B.Com) and has a Master of Management Studies – Finance (from University of Mumbai). His experience in Indian financial services, capital markets in various capacities spreads over 22 years with a rich experience in managing debt schemes. Before joining SBIFML, he worked as Fund Manager with L&T Investment Management Ltd., with Reliance Asset Management Ltd., and Reliance General Insurance Co. Ltd., respectively.
At SBIFML, Mr Ahuja currently manages SBI Magnum Income Fund, SBI Magnum Gilt Fund, SBI Dynamic Bond Fund, SBI Magnum Medium Duration Fund, SBI Magnum Constant Maturity Fund, SBI Equity Hybrid Fund (debt portion), SBI Retirement Benefit Fund (debt portion), SBI Magnum Children’s Benefit Fund – Investment Plan, SBI Balanced Advantage Fund, and SBI-ETF 10 year Gilt.
Fund Outlook – SBI CPSE Bond Plus SDL Sep 2026 50:50 Index Fund
SBI CPSE Bond Plus SDL Sep 2026 50:50 Index Fund seeks to provide returns that closely correspond to the total returns of the securities as represented by the Nifty CPSE Bond Plus SDL Sep 2026 50:50 index, subject to tracking error. The proportion of investment as per the underlying index into AAA rated CPSE bonds & SDLs is in the ratio of 50:50 (equal weight).
The scheme offers investors high credit quality with a diversified Debt portfolio; it provides an opportunity to gain exposure in CPSE bonds and SDLs, offering a great mix. Being an index fund, this scheme will follow passive investment style that reduces the fund manager’s role, thus resulting in a low expense ratio as compared to actively managed Debt mutual funds. Investing passively in high quality AAA rated CPSE government-backed bonds and SDLs will make the scheme less prone to credit risk.
Investment in debt mutual fund with the target maturity approach provides an indexation benefit to investors, with long-term capital gains being taxed at 20% after indexation, as compared to 30% without indexation.
However, looming threat of the Omicron variant with rapid rise of cases in India could act as a major headwind to the economy and the US Federal Reserve’s announcement of a reduction of stimulus amid escalating inflation may witness intensified market volatility in the near term. These factors among many others could have a bearing on the scheme’s performance and may attract interest rate risk.
Therefore, this scheme is suitable if you, the investor, are seeking income over the target maturity period and safer fixed income avenues. That said, be ready to assume moderate-to-high risk (to survive the dynamic market conditions and interest rate fluctuations), and make sure your investment horizon and investment objective is well- aligned with the scheme.
This article first appeared on PersonalFN here