Debt market yields are becoming attractive against the backdrop of conducive economic environment – moderated inflation, sustained economic growth, accommodative monetary policy, etc. Investors can potentially take advantage of this opportunity by investing in high-quality Corporate Bonds with pre-defined maturity.
The RBI is committed to gradual and non-disruptive rate normalisation. The combination of excessive liquidity/low rates and improving growth/elevated inflation/demand-supply imbalance have resulted in a very steep yield curve. Investors can potentially benefit from the current steepness in rates by investing in target maturity funds.
Investing in Corporate Bonds through a Passive Debt Fund can bring multiple advantages for investors. Target maturity funds offer decent returns, and if you hold them until maturity, these funds would be less volatile.
Aditya Birla Sun Life Mutual Fund has launched Aditya Birla Sun Life CRISIL AAA June 2023 Index Fund. It is an open-ended Target Maturity Index Fund tracking the CRISIL IBX AAA Index – June 2023.
Table 1: Details of Aditya Birla Sun Life CRISIL AAA June 2023 Index Fund
|Type||An open-ended Target Maturity Index Fund tracking the CRISIL IBX AAA Index – June 2023. A moderate interest rate risk and relatively low credit risk.||Category||Index Fund|
|Investment Objective||The investment objective of the Scheme is to generate returns corresponding to the total returns of the securities as represented by the CRISIL IBX AAA Index – June 2023 before expenses, subject to tracking errors. The Scheme does not guarantee/indicate any returns. There can be no assurance that the objective of the Scheme will be achieved.|
|Min. Investment||Rs 500 and in multiples of Re 1/- thereafter. Additional Purchase Rs 500/- and in multiples of Re. 1 thereafter.||Face Value||Rs 10/- per unit|
|Entry Load||Not Applicable||Exit Load||Nil|
|Fund Manager||Mr Harshil Suvarnkar||Benchmark Index||CRISIL IBX AAA Index – June 2023|
|Issue Opens||February 14, 2022||Issue Closes||February 21, 2022|
(Source: Scheme Information Document)
The investment strategy for Aditya Birla Sun Life CRISIL AAA June 2023 Index Fund will be as follows:
Aditya Birla Sun Life CRISIL AAA June 2023 seeks to track the CRISIL IBX AAA Index – June 2023 subject to tracking errors. Accordingly, the scheme will endeavour to invest in debt instruments in line with the benchmark of the scheme.
The maturity of the scheme is expected to be June 30, 2023 (“Maturity Date”). It will distribute all of its maturity proceeds (Net Assets) to the unitholders within 10 (Ten) Business days from the date of maturity of the Scheme, in line with current regulatory timelines.
The Scheme will follow Buy & Hold investment strategy in which existing bonds will be held till maturity unless sold for meeting redemptions, payment of IDCW, rebalancing requirements, or optimizing the portfolio construction process. 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 CRISIL IBX AAA Index – June 2023.
The scheme’s performance may not be 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.
Further, the norms, as indicated in para (1) of SEBI circular no. SEBI/HO/IMD/DF3/CIR/P/2019/147 dated November 29, 2019 reproduced below, shall be adopted –
a) The constituents of the index shall be aggregated at the issuer level.
b) The index shall have a minimum of 8 issuers.
c) No single issuer shall have more than 15% weight in the index.
d) The rating of the constituents of the index shall be investment grade.
e) The constituents of the index shall have a defined credit rating and defined maturity as specified in the index methodology.
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 Aditya Birla Sun Life CRISIL AAA June 2023 Index Fund
|Instruments||Indicative Allocation (% of net assets)||Risk Profile|
|Debt instruments forming part of the CRISIL IBX AAA Index – June 2023||95||100||Moderate|
|Cash and Debt/Money Market Instruments||0||5||Low|
(Source: Scheme Information Document)
About the benchmark
CRISIL IBX AAA Index – June 2023 seeks to track the performance of AAA issuers maturing between 01 January 2023 to 30 June 2023. The index shall mature on 30 June, 2023 and it’s a target date index which follows a roll-down approach.
- All eligible issuers with a conservative rating of AAA maturing in the eligible period will be shortlisted
- Top 20 issuers with a minimum total amount outstanding of Rs. 1,000 crores in the eligible period will be selected based on liquidity. If less than 20 issuers are available, all issuers will be selected
- Only listed issuers shall be included in the index. An issuer will be considered to be listed if at least one security of such issuer is listed
- The liquidity score will be calculated based on the volume traded (70%), number of trades (15%), and days traded (15%) in the previous quarter
Here’s the list of constituents under the CRISIL IBX AAA Index – June 2023:
(Source: Scheme Information Document)
Note that weights under the index will be reset every quarter.
Who will manage Aditya Birla Sun Life CRISIL AAA June 2023 Index Fund?
The designated fund manager for this scheme will be Mr Harshil Suvarnkar; he is a B. Com graduate, holds Masters in Management Studies (Finance) and Post Graduate Diploma in Securities Law. Mr Harshil Suvarnkar has an overall experience of 10 years in the financial services industry. Prior to joining ABSL AMC he was associated with Indiabulls Housing Finance Limited for 10 years as Head – Markets, Treasury handling treasury investments, Asset Liability Management (ALM) and capital market borrowing.
At ABSL AMC, Mr Suvarnkar currently manages Aditya Birla Sun Life Regular Savings Fund, Aditya Birla Sun Life Equity Hybrid ’95 Fund, Aditya Birla Liquid Fund, Aditya Birla Sun Life Multi-Cap Fund, Aditya Birla Sun Life Banking & PSU Debt Fund, Aditya Birla Sun Life Equity Savings Fund, Aditya Birla Sun Life Retirement Fund, Aditya Birla Sun Life Floating Rate Fund and Aditya Birla Sun Life Bal Bhavishya Yojna.
Fund Outlook – Aditya Birla Sun Life CRISIL AAA June 2023 Index Fund
Aditya Birla Sun Life CRISIL AAA June 2023 Index Fund is a passively managed debt index fund that aims to replicate the performance of the CRISIL IBX AAA Index – June 2023, subject to tracking errors. The scheme seeks to invest in 20 AAA issuers maturing between 01 January 2023 to 30 June 2023.
The scheme invests in AAA-rated corporate and PSU bonds of fixed tenure and fixed coupon rate, with an aim to provide reasonable returns to investors. The scheme is expected to mature on June 30, 2023. This fixed maturity term allows investors to plan their investments and align them with suitable goals. It provides a low-cost, hassle-free solution for investors looking to build their core fixed income portfolio.
The scheme invests only in the highest quality corporate debt instruments, with AAA ratings. This lowers the credit risk for investors. The scheme has no duration risk when held till maturity. Further, its roll-down strategy is conducive to the current interest rate environment.
However, do note that according to the Union Budget 2022-23, there may be higher-than-expected borrowings of the center and state governments that can negatively impact the bond yields. The Indian bond markets have already displayed discomfort in this respect, plus owing to the fact 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 a bearing on the scheme’s performance.
Thus, Aditya Birla Sun Life CRISIL AAA June 2023 Index Fund is suitable for investors with a low to moderate risk profile looking forward to building their Debt portfolio and ensuring an investment horizon to match the fund’s portfolio duration.
This article first appeared on PersonalFN here