The RBI issues Bonds/Securities on behalf of the Government of India to borrow money from the financial market and meet its fiscal deficit. These are issued from time to time to raise funds for various governmental purposes.
Government securities or G-Secs are highly liquid and safe investment avenues with reasonable yields. These government-backed instruments carry a sovereign status and practically eliminate credit risk for investors. G-Secs are on track to be included in the global indices. The increase in demand from foreign investors may increase G-sec prices and lower the yield, thus creating value for the domestic investors.
RBI’s overarching priority remains to support growth, and its commitment is to normalize rates in a gradual, calibrated, and non-disruptive manner. Yield curves continue to be very steep, and the G-Sec curve looks attractive till 5-6 year point with steepness gradually fading after that. Investors can potentially benefit from the current steepness in rates by investing in target maturity funds.
Target Maturity Fund is an ideal solution for investors with a set Investment horizon. The roll-down strategy aims to negate any duration risk for investors who remain invested throughout the life of the fund.
Aditya Birla Sun Life Mutual Fund has launched Aditya Birla Sun Life Nifty G-Sec Jun 2027 ETF. It is an open-ended Target Maturity Exchange-Traded Fund tracking the Nifty G-Sec Jun 2027 Index. It carries a relatively high-interest rate risk but a relatively low credit risk.
Table 1: Details of Aditya Birla Sun Life Nifty G-Sec Jun 2027 ETF
| Type | An open-ended Target Maturity Exchange-Traded Fund tracking the Nifty G-Sec Jun 2027 Index. A relatively high-interest rate risk and relatively low credit risk. | Category | Exchange-Traded 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 Nifty G-Sec Jun 2027 Index 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 5,000/- and in multiples of Re 1 thereafter. | Face Value | Rs 10/- per unit |
| Entry Load | Not Applicable | Exit Load | Nil |
| Fund Manager | – Mr Bhupesh Bameta – Mr Harshil Suvarnkar |
Benchmark Index | Nifty G-Sec Jun 2027 Index |
| Issue Opens: | March 22, 2022 | Issue Closes: | March 24, 2022 |
(Source: Scheme Information Document)
The investment strategy for Aditya Birla Sun Life Nifty G-Sec Jun 2027 ETF will be as follows:
Aditya Birla Sun Life Nifty G-Sec Jun 2027 ETF seeks to track the Nifty G-Sec Jun 2027 Index subject to tracking errors. Accordingly, the scheme will invest in debt instruments in line with the underlying Index of the scheme. The scheme will mature on June 30, 2027. It will distribute all of its maturity proceeds (Net Assets) to the Unitholders within 10 (Ten) Business days from the date of maturity, in line with the current regulatory timelines.
The scheme will follow a Buy & Hold investment strategy, and the existing bonds will be held till maturity unless sold for meeting redemptions, rebalancing requirements, or optimizing portfolio construction process. The portfolio of eligible securities invested by the Scheme shall 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 the Nifty G-Sec Jun 2027 Index. The Scheme may or may not hold all of the eligible securities which are part of the Nifty G-Sec Jun 2027 Index. The Scheme’s exposure to money market instruments will be in line with the Asset Allocation table.
Under normal circumstances, the Asset Allocation will be as under:
Table 2: Asset Allocation for Aditya Birla Sun Life Nifty G-Sec Jun 2027 ETF
| Instruments | Indicative Allocation (% of net assets) | Risk Profile | |
| Minimum | Maximum | High/Medium/Low | |
| Debt Instruments comprising Nifty G-Sec Jun 2027 Index | 95 | 100 | Moderate |
| Cash, Money Market & Debt instruments | 0 | 5 | Low to Moderate |
(Source: Scheme Information Document)
About the Benchmark
Nifty G-Sec Jun 2027 Index seeks to measure the performance of the five most liquid G-Secs maturing during the twelve-month period ending June 30, 2027 based on the aggregate trading value and those with a minimum outstanding amount of Rs. 25,000 crores are selected to be part of the index. Each G-Sec is given a weight based on a composite score calculated on the basis of liquidity and outstanding amount.
Here’s the list of constituents by weightage under the Nifty G-Sec Jun 2027 Index:
(Source: ABSL Nifty G-Sec Jun 2027 ETF PPT)
Note that all papers will mature on or before June 30, 2027 and the index will be rebalanced on a quarterly basis.
Who will manage Aditya Birla Sun Life Nifty G-Sec Jun 2027 ETF?
Mr Bhupesh Bameta & Mr Harshil Suvarnkar will be the designated Fund Managers for this scheme.
Mr Bhupesh Bameta is a CFA Charter holder (CFA Institute, USA) and has completed B. Tech (IIT Kanpur). He has an overall experience of more than 10 years in the financial services industry. Prior to joining ABSL AMC, he was the Head of Research in Forex and Rates Desk at Edelweiss Securities Limited, covering global and Indian forex markets and economies. He was also associated with Quant Capital for 6 years as an Economist and was covering Indian Global Economy, and markets.
At ABSLAMC, Mr. Bameta currently manages, Aditya Birla Sun Life Government Securities Fund, Aditya Birla Sun Life Income Fund, Aditya Birla Sun Life Dynamic Bond Fund, and Aditya Birla Sun Life Nifty SDL Apr 2027 Index Fund.
Mr Harshil Suvarnkar holds Masters in Management Studies (Finance) and Post Graduate Diploma in Securities Law & B. Com. He has an overall experience of 10 years in the financial services industry. Prior to joining ABSLAMC he was associated with Indiabulls Housing Finance Limited for 10 years as Head – Markets, Treasury and was handling treasury investments, Asset Liability Management (ALM), and capital market borrowing.
At ABSLAMC, Mr. Suvarnkar currently manages, Aditya Birla Sun Life Liquid Fund, Aditya Birla Sun Life Regular Savings Fund, Aditya Birla Sun Life Banking & PSU Debt Fund, Aditya Birla Sun Life Floating Rate Fund, Aditya Birla Sun Life Equity Hybrid ’95 Fund, Aditya Birla Sun Life Equity Savings Fund, Aditya Birla Sun Life Bal Bhavishya Yojna, Aditya Birla Sun Life Retirement Fund, Aditya Birla Sun Life Multi-Cap Fund, Aditya Birla Sun Life Nifty SDL Apr 2027 Index Fund, and Aditya Birla Sun Life Crisil AAA Jun 2023 Index Fund.
Fund Outlook – Aditya Birla Sun Life Nifty G-Sec Jun 2027 ETF
Aditya Birla Sun Life Nifty G-Sec Jun 2027 ETF is a passively managed index fund that aims to replicate the performance of the Nifty G-Sec Jun 2027 Index, subject to tracking errors. The scheme seeks to invest in the 5 most liquid G-Secs under the index issued and backed by the government that matures on June 30, 2027. The fortune of this scheme will depend on the performance of the underlying index.
The scheme would invest in G-secs with specified interest rates and fixed tenures, which gives investors clarity on expected returns. Furthermore, if the investment in this fund is held for more than 3 years, then investors can also get the benefit of indexation on redemption, making returns more tax efficient.
The Roll down strategy is apt in the current interest rate environment. The scheme will invest in sovereign rated government-backed securities with low credit risk and may have no duration risk when held till maturity.
However, as per 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 is, from now on, 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, Aditya Birla Sun Life Nifty G-Sec Jun 2027 ETF is suitable for investors with a moderate risk profile looking forward to generating income over the long term. One should ensure that their investment horizon matches the fund’s portfolio duration.
This article first appeared on PersonalFN here
