Target Maturity debt funds differentiate itself from normal open ended mutual funds by having a roll down approach with fixed maturity date, making potential returns visible for investors. Target Maturity Funds carry features of several traditional fixed income investments and provide relatively higher returns.
Considering the current volatile and uncertain environment where most investors are concerned about a possible increase in interest rates in coming quarters and are also unhappy with low money market rates, may consider investing in SDLs that are a kind of government backed securities with low credit risk.
State Development Loans (SDLs) are sovereign securities (bonds) issued by various State Governments to raise funds from the market at market determined rate using auction mechanism. It offers Negligible Credit Risk as securities have implicit sovereign guarantee and higher yield than G-sec securities. Over the years, the liquidity in secondary market for SDL has improved.
A target maturity index fund investing in SDLs offers a good combination of predictable returns and a high-quality fixed income portfolio to investors while there could be a benefit from the steep yield curve. In a medium term (i.e., 5-6 years) the yield curve appears to be relatively attractive and SDLs across the maturity curve are offering relatively higher spread over G-Sec.
Mirae Asset Mutual Fund has launched Mirae Asset Nifty SDL Jun 2027 Index Fund. It is an open-ended target maturity Index Fund investing in the constituents of Nifty SDL Jun 2027 Index. A scheme with relatively high interest rate risk and relatively low credit risk.
Commenting on the NFO, Mr Swarup Mohanty, Director & CEO at Mirae Asset Investment Managers (India) said, “The Mirae Asset Nifty SDL Jun 2027 Index Fund may be a good investment avenue for investors seeking to invest in robust debt portfolio with low credit risk, offering fairly predictable returns for investors who plan to stay invested over the life cycle of the fund, while offering the flexibility to subscribe or redeem at any time.”
Table 1: Details of Mirae Asset Nifty SDL Jun 2027 Index Fund
|An open-ended target maturity Index Fund investing in the constituents of Nifty SDL Jun 2027 Index. A scheme with relatively high interest rate risk and relatively low credit risk.
|The investment objective of the scheme is to track the Nifty SDL Jun 2027 Index by investing in State Development Loans (SDL), maturing on or before June 15, 2027, subject to tracking errors. However, there is no assurance that the investment objective of the Scheme will be realized and the Scheme does not assure or guarantee any returns.
|Rs 5,000 and in multiples of Re 1/- thereafter. Additional Purchase Rs 1,000/- and in multiples of Re. 1 thereafter.
|Rs 10/- per unit
|Mr Mahendra Kumar Jajoo
|Nifty SDL Jun 2027 Index
|March 25, 2022
|March 29, 2022
(Source: Scheme Information Document)
The investment strategy for Mirae Asset Nifty SDL Jun 2027 Index Fund will be as follows:
Mirae Asset Nifty SDL Jun 2027 Index Fund is a passively managed index fund which will employ an investment approach designed to track the performance of Nifty SDL Jun 2027 Index.
The Scheme will follow Buy and Hold investment strategy in which existing SDLs will be held till maturity unless sold for meeting the redemption requirement. The Fund will replicate the index using risk/replication strategy in which it will match the duration and other risk parameter as per SEBI guidelines. On maturity of the fund, proceeds will be distributed among unit holders as per units held.
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.
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 SDLs in the Scheme portfolio, the reinvestment will be in line with the index methodology.
Under normal circumstances, the Asset Allocation of the scheme will be as under:
Table 2: Asset Allocation for Mirae Asset Nifty SDL Jun 2027 Index Fund
|Indicative Allocation (% of net assets)
|State Development Loans (SDLs) representing Nifty SDL Jun 2027 Index
|Low to Medium
|Money Market instruments (Treasury Bills, Government Securities and Tri-party Repo on government securities or T-bills Only)*
|Low to Medium
*Money Market Instruments will include only treasury bills and government securities having a residual maturity up to one year, Tri-party Repo on government securities or T-bills and any other like instruments as specified by the Reserve Bank of India from time to time.
(Source: Scheme Information Document)
About the Benchmark
Nifty SDL Jun 2027 Index seeks to measure the performance of portfolio of SDLs maturing during the twelve month period ending June 15, 2027. Index holds SDLs issued by states/UTs, maturing during the twelve month period ending June 15, 2027.
Here’s the list of constituents by weightage under the Nifty SDL Jun 2027 Index:
Note that the Index will be reviewed and rebalanced at the end of each calendar quarter.
Who will manage Mirae Asset Nifty SDL Jun 2027 Index Fund?
Mr Mahendra Kumar Jajoo is the designated fund manager for this scheme. He is a CFA, ACA, and ACS with over 29 years of experience in the field of financial services. Prior to joining Mirae Asset AMC, Mr. Jajoo was Director with AUM Capital Markets Ltd. He has also been associated with organizations like Pramerica Asset Managers Ltd., Tata Asset Management Ltd., ABN AMRO Asset Management Ltd., and ICICI Group.
At Mirae Asset AMC, Mr. Jajoo currently manages Mirae Asset Savings Fund, Mirae Asset Cash Management Fund, Mirae Asset Dynamic Bond Fund, Mirae Asset Hybrid Equity Fund (Debt portion), Mirae Asset Fixed Maturity Plan – Series III – 1122 days, Mirae Asset Equity Savings Fund (debt portion), Mirae Asset Short Term Fund, Mirae Asset Arbitrage Fund (Debt Portion), Mirae Asset Banking and PSU Debt Fund, Mirae Asset Ultra Short Duration Fund, Mirae Asset Money Market Fund and Mirae Asset Corporate Bond Fund.
Fund Outlook – Mirae Asset Nifty SDL Jun 2027 Index Fund
Mirae Asset Nifty SDL Jun 2027 Index Fund aims to track the Nifty SDL Jun 2027 Index by investing in State Development Loans (SDL), maturing on or before June 15, 2027, subject to tracking errors. The fortune of this scheme will depend on the performance of the underlying index.
The underlying index holds 20 SDLs of states/UTs that are selected based on their highest outstanding amount as on January 31, 2022. Each state/UT that is part of the index is given equal weight as on the base date of the index. The scheme is a fixed maturity index fund which provides portfolio visibility and reasonably predictable returns at maturity at relatively low cost.
The scheme seeks to invest in only SDL securities with negligible credit risk and with fund manager seeking to replicate the duration risk and yield profile of the index. Investors have the option to subscribe or redeem anytime during the lifecycle of the fund.
Relatively attractive yields carried by SDL securities currently at relatively higher spread over G-Sec in medium term maturities makes it attractive with lower credit risk as compared to corporate bonds. However, do note that as per the Union Budget 2022-23, there may be higher-than-expected government borrowings that can negatively impact the government bond yields. The Indian bond markets have already displayed discomfort in this respect and RBI is on the path to monetary policy normalisation.
In addition, the news of hike in interest rates in the US 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, Mirae Asset Nifty SDL Jun 2027 Index Fund is suitable for investors with a moderate risk profile looking forward to building their Debt portfolio. One should ensure that their investment horizon matches the fund’s portfolio duration, so that they can stay invested until maturity.
This article first appeared on PersonalFN here