Target maturity funds have started gaining traction as a superior investment option from the debt market because they allow investors to take advantage of duration strategies, due to their pre-defined tenures. Selecting the right investment product is essential to meet your investment objectives.
Target maturity fund is an ideal solution for investors with a set Investment horizon, the strategy aims to negate any duration risk for investors who remain invested through the life of the fund. In this segment, the most significant retracement has occurred in the 5-year yields on the AAA and SDL curves.
Many fund houses, such as ICICI Mutual Fund, Kotak Mahindra Mutual Fund, and HDFC Mutual Fund, have launched SDL Index funds with the target maturity approach in the past few months. Target maturity funds offer decent returns, and if you hold them until maturity, these funds would be less volatile.
Joining the bandwagon, Axis Mutual Fund has launched Axis CRISIL SDL 2027 Debt Index Fund. It is an open-ended Target Maturity Index Fund investing in constituents of CRISIL IBX SDL Index – May 2027.
Commenting on the launch of the NFO, Mr. Chandresh Nigam, MD & CEO at Axis AMC said, “The launch of the Axis CRISIL SDL 2027 Debt Index Fund is another step towards building the passive investment segment into an attractive proposition for a broad range of investors. As a fund house that believes in ‘responsible investing’, we are offering investors the opportunity to invest in quality assets. We are confident that this fund will be a notable add-on that will yield long term wealth creation opportunities for our investors.”
Table 1: Details of Axis CRISIL SDL 2027 Debt Index Fund
|Type||An open-ended Target Maturity Index Fund investing in constituents of CRISIL IBX SDL Index – May 2027. A Relatively High Interest Rate Risk and Relatively Low Credit risk||Category||Index Fund|
|Investment Objective||The investment objective of the scheme is to provide investment returns closely corresponding to the total returns of the securities as represented by the CRISIL IBX SDL Index – May 2027 before expenses, subject to tracking errors. However, there can be no assurance that the investment objective of the Scheme will be achieved.|
|Min. Investment||Rs 5,000 and in multiples of Re 1/- thereafter. Additional Purchase Rs 1,000/- and in multiples of Re. 1 thereafter.||Face Value||Rs 10/- per unit|
|Entry Load||Not Applicable||Exit Load||Nil|
|Fund Manager||Mr. Kaustubh Sule
Mr. Hardik Shah
|Benchmark Index||CRISIL IBX SDL Index – May 2027|
|Issue Opens||February 07, 2022||Issue Closes||February 21, 2022|
(Source: Scheme Information Document)
The investment strategy for Axis CRISIL SDL 2027 Debt Index Fund will be as follows:
The AXIS CRISIL SDL 2027 Debt Index Fund is a passively managed index fund that will employ an investment approach designed to track the performance of the CRISIL IBX SDL Index – May 2027. The scheme will follow the Buy-and-Hold investment strategy towards investing in state government securities that will be held till maturity unless liquidated to meet redemptions/rebalancing.
The scheme shall replicate the index completely. In case the scheme is not able 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.
The performance of the scheme may not commensurate with the performance of the respective benchmark of the scheme on any given day or over any given period. Such variation is commonly referred to as tracking error. The scheme intends to maintain a low tracking error by actively managing the portfolio in line with the index.
During normal circumstances, the scheme’s exposure to money market instruments will be in line with the asset allocation table. However, in case of maturity of instruments in the scheme portfolio, the reinvestment will be in line with the index methodology.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation for Axis CRISIL SDL 2027 Debt Index Fund
|Instruments||Indicative Allocation (% of net assets)||Risk Profile|
|Debt Instruments comprising CRISIL IBX SDL Index – May 2027 #||95||100||High|
|Money Market Instruments||0||5||Low to Medium|
(Source: Scheme Information Document)
About the benchmark
The CRISIL IBX SDL Index – May 2027 seeks to measure the performance of portfolio of State Development Loans (SDLs) maturing during the six-month period, i.e., December 01, 2026 to May 31st, 2027, prior to the maturity date of index. The index is computed using the total return methodology including price return and coupon return.
The index comprises of SDLs issued by 12 states based on the following parameters:
- Minimum issue size of Rs 1,000 Cr
- Emphasis on liquidity – Index will be evaluated basis volume and frequency of trading in underlying securities
- Weighted basis liquidity and size of issuance to ensure portfolio liquidity.
Here’s the list of top constituents under the CRISIL IBX SDL Index – May 2027:
(Source: Scheme Information Document)
Note that all papers will mature on or before May 31st 2027 and the index will be rebalanced every quarter.
Who will manage Axis CRISIL SDL 2027 Debt Index Fund?
Mr. Kaustubh Sule and Mr. Hardik Shah will be the designated fund manager for this scheme.
Mr. Kaustubh Sule holds B.E. (Computer Engineering) & MBA (Finance) degrees plus an overall 17 years of experience in financial services. Prior to joining Axis AMC, he has worked with HDFC Standard Life Insurance Company Ltd. as Dealer – Fixed Income, Reliance Life Insurance Company Ltd. as Dealer – Fixed Income, Union Bank of India as Dealer – Fixed Income, Hexaware Technologies Ltd. as Software Engineer.
At Axis AMC, Mr. Sule currently manages Axis Gilt Fund, Axis Children’s Gift Fund, Axis Dynamic Bond Fund, Axis Strategic Bond Fund, Axis AAA Bond Plus SDL ETF – 2026 Maturity, Axis Equity Saver Fund, and Axis Hybrid Fund.
Mr. Hardik Shah holds MBA (Finance) and B.E (I.T) degree and he has an overall 13 years of experience in financial services industry. Before joining Axis Mutual Fund, he was associated with SBI LIFE Insurance Co. Ltd., Nippon India Asset Management Co. Ltd., and Quantum Mutual Fund. At Axis AMC, Mr. Shah currently does not manage any other scheme.
Fund Outlook – Axis CRISIL SDL 2027 Debt Index Fund
Axis CRISIL SDL 2027 Debt Index Fund is a passively managed debt index fund that aims to replicate the performance of the CRISIL IBX SDL Index – May 2027, subject to tracking errors. The scheme seeks to invest in 12 State Development Loans (SDLs) under the index issued by state government that matures on May 31, 2027.
The scheme provides investors an exposure to Government-backed instruments like SDLs, allows them to buy/sell as required without any lock-in period. The scheme offers investors high credit quality with a diversified Debt portfolio. It provides a low-cost hassle-free solution for investors looking to build their core fixed income portfolio.
The target maturity approach offers investors the benefit of indexation and to invest in individual bonds/SDLs passively through Debt mutual fund structure. The 5-year space has seen yields rise by over 50 bps since December 2021; yields in this space seem to be attractive as compared to other tenures. The scheme is an ideal solution for investors looking to invest with a 5-year investment horizon.
However, do note that according to the Union Budget 2022-23, there may be higher-than-expected government borrowings of the Central and State governments that can negatively impact the government bond yields. The Indian bond markets have already displayed discomfort in this respect, plus owing to the fact that going forward RBI is on the path to monetary policy normalisation.
In addition, the US Federal Reserve’s announcement of a hike in interest rates from March 2022, is also weighing down on the Indian debt market sentiments. As a result, the bond market is expected to remain volatile in the near term. The interest rate risk amidst the dynamic market conditions is likely to have bearing on the scheme’s performance.
Thus, Axis CRISIL SDL 2027 Debt Index Fund is suitable for investors with a moderately high-risk profile looking forward to building their Debt portfolio and ensuring a 5-year investment horizon to match the fund’s portfolio duration.
This article first appeared on PersonalFN here