Target Maturity Index Fund serves as an alternative to Fixed Deposits offered by banks, as in the current scenario, interest rates on the deposits are relatively low. Investors are seeking to invest in alternate avenues that offer decent returns with low credit risk.

Target Maturity Index Funds offer relatively better-yielding investments by taking advantage of spread assets, and the roll-down maturity feature helps achieve risk-adjusted performance. 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.

Many fund houses such as ABSL Mutual Fund, DSP Mutual Fund, and Axis Mutual Fund have recently launched Target Maturity Funds that are managed passively. Joining the bandwagon, HSBC Mutual Fund has launched HSBC CRISIL IBX 50:50 Gilt Plus SDL Apr 2028 Index Fund. It is an open-ended Target Maturity Index Fund tracking CRISIL IBX 50:50 Gilt Plus SDL Index – April 2028. Relatively high-interest rate risk and relatively low credit risk.

Commenting on the launch of the fund, Mr Ravi Menon, CEO at HSBC AMC, said, “HSBC CRISIL IBX 50:50 Gilt Plus SDL Apr 2028 Index Fund is ideal for investors who are looking for relatively low cost, minimal credit risk, high liquidity, and tax-efficient investment product. The fund is a passive fund tracking an index whose constituent parts comprise exclusively of Government of India securities and carefully selected highly liquid State Government securities. The fund is an open-ended fund with target maturity and provides better liquidity at a low cost.”

Table 1: Details of HSBC CRISIL IBX 50:50 Gilt Plus SDL Apr 2028 Index Fund

Type An open-ended Target Maturity Index Fund tracking CRISIL IBX 50:50 Gilt Plus SDL Index – April 2028. Relatively high-interest rate risk and relatively low credit risk. Category Index Fund
Investment Objective The investment objective of the Scheme is to provide returns corresponding to the total returns of the securities as represented by the CRISIL IBX 50:50 Gilt Plus SDL Index – April 2028 before expenses, subject to tracking errors. However, there is 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
SIP/SWP/STP Available
Plans
  • Direct
  • Regular
Options
  • Growth
  • Income Distribution cum capital withdrawal (IDCW)
Entry Load Not Applicable Exit Load Nil
Fund Manager Mr Kapil Punjabi Benchmark Index CRISIL IBX 50:50 Gilt Plus SDL Index – April 2028
Issue Opens March 15, 2022 Issue Closes March 28, 2022

(Source: Scheme Information Document)  

The investment strategy for HSBC CRISIL IBX 50:50 Gilt Plus SDL Apr 2028 Index Fund will be as follows:

HSBC CRISIL IBX 50:50 Gilt Plus SDL Apr 2028 Index Fund is a target maturity index fund that will employ an investment approach designed to track the performance of CRISIL IBX 50:50 Gilt Plus SDL Index – April 2028.

The Scheme will follow Buy & Hold investment strategy. Existing securities will be held until maturity unless sold for meeting redemptions, payment of IDCW, rebalancing requirement, or optimizing portfolio construction process.

The Scheme would seek to invest in the securities forming part of the underlying index. Where the Scheme is not able to replicate the benchmark index completely on account of non-availability of the issuances of the issuer forming part of the benchmark index, the Scheme would adhere with the requirements stipulated in the SEBI Circular dated November 29, 2019, and other SEBI Guidelines / Circulars issued from time to time.

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.

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: Table 2: Asset Allocation for HSBC CRISIL IBX 50:50 Gilt Plus SDL Apr 2028 Index Fund

Instruments Indicative Allocation (% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
GSecs securities forming part of the GSec portion of CRISIL IBX 50:50 Gilt Plus SDL Index – April 2028
SDLs securities forming part of the SDL portion CRISIL IBX 50:50 Gilt Plus SDL Index – April 2028
95 100 High
Money Market instruments including cash and cash equivalents (Treasury Bills, Government Securities with residual maturity of upto 1 year and Tri-Party Repos)@ 0 5 Low to Medium

@ Excluding money in transit before deployment /payout.

(Source: Scheme Information Document)  

About the Benchmark

CRISIL IBX 50:50 Gilt Plus SDL Index – April 2028 seeks to track the performance of Gilt and SDL securities maturing between 01 May 2027 to 30 April, 2028. The index shall mature on 30 April 2028, and it’s a target date index that follows a roll-down approach.

  • All Securities are selected on the basis of Amount Outstanding
  • Minimum Amount Outstanding should be Rs. 25,000 crore
  • The index constituents are valued on a daily basis using CRISIL Valuations
  • State issuers with a minimum outstanding of Rs. 1,000 crores in the eligible period, having the security nearest to maturity
  • Index portfolio marked-to-market on a daily basis using CRISIL valuations

Here is the list of constituent issuers under the CRISIL IBX 50:50 Gilt Plus SDL Index – April 2028:

list

(Source: HSBC CRISIL IBX 50:50 Gilt Plus SDL Apr 2028 Index Fund PPT)  

Note that weights under the index will be reset semi-annually. Eligible securities will be added on a 6 monthly basis, and weights will be redistributed based on a ratio of the amount outstanding (30% weightage) and liquidity score (70% weightage).

Who will manage HSBC CRISIL IBX 50:50 Gilt Plus SDL Apr 2028 Index Fund?

The designated fund manager for this scheme is Mr Kapil Punjabi. He holds B.M.S and M.M.S (Mumbai) degrees and has more than 14 years of experience in research and fixed income fund management. Prior to joining HSBC AMC, he was associated with Taurus Asset Management Company Limited as Fund Manager Fixed, Edelweiss Asset Management Limited as Fund Manager Fixed Income, Edelweiss Securities Limited as Manager Investment, Trans Market Group Research (India) Private Limited as Research Analyst and Proprietary Trader.

At HSBC AMC, Mr. Punjabi currently manages, HSBC Global Equity Climate Change Fund of Fund (for Debt portion) HSBC Debt Fund, HSBC Cash Fund, HSBC Overnight Fund, HSBC Ultra Short Duration Fund, HSBC Low Duration Fund, HSBC Fixed Term Series – FTS 137, 139 and 140, HSBC Equity Hybrid Fund (for fixed income portion), and HSBC Regular Savings Fund.

Fund Outlook – HSBC CRISIL IBX 50:50 Gilt Plus SDL Apr 2028 Index Fund

HSBC CRISIL IBX 50:50 Gilt Plus SDL Apr 2028 Index Fund is a passively managed debt index fund that aims to replicate the performance of the CRISIL IBX 50:50 Gilt Plus SDL Index – April 2028, subject to tracking error. The scheme offers safety with relatively low credit risk by investments in G-Sec and SDL.

The scheme focuses on the rich steepness of the curve vs. the shorter end. It aims on the six-year target maturity segment, which looks attractive considering the volatile outlook on long-term securities. The scheme provides investors with a mix of quality papers with better risk-adjusted performance and liquidity.

The scheme invests in a 50:50 proportion of quality G-Sec and SDL papers and has no duration risk when held until 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 that 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 and the recent geopolitical tension between Russia-Ukraine 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, HSBC CRISIL IBX 50:50 Gilt Plus SDL Apr 2028 Index Fund is suitable for investors with a 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


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