The yields on the short to medium end of the maturity curve in the Indian debt market appear to be favourable. The short to medium bend of the yield curve is currently being driven by both domestic and global macroeconomic indicators, making investments with a maturity of 5-6 years an attractive investment option.
Target Maturity Index Funds are debt funds with predetermined maturities that are passively managed. These funds invest in and hold bonds with similar maturities that are part of the underlying bond Index. In short to medium term, debt securities like G-secs and SDLs offer enticing yields. While G-secs offer high liquidity with the added benefit of high quality, SDLs offer returns comparable to those of AAA bonds. G-secs are backed by the government and thus have a sovereign rating. SDLs, too have sovereign ratings similar to G-Secs. Thus, they have low credit risk.
The combination of excessive liquidity/low rates and improving growth/elevated inflation/demand-supply imbalance has resulted in a steep yield curve. Investors can potentially benefit from the current steepness in rates by investing in Target Maturity Funds.
Many fund houses, such as DSP Mutual Fund, HSBC Mutual Fund and Axis Mutual Fund, have recently launched Target Maturity Funds that are managed passively. Joining the bandwagon, ABSL Mutual Fund, has launched Aditya Birla Sun Life 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.
Table 1: Details for Aditya Birla Sun Life CRISIL IBX 50:50 Gilt Plus SDL Apr 2028 Index Fund
|An open-ended Target Maturity Index Fund tracking the CRISIL IBX 50:50 Gilt Plus SDL Index – April 2028. A relatively high-interest rate risk and relatively low credit risk.
|The investment objective of the scheme is to generate 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. The scheme does not guarantee/indicate any returns. There can be no assurance or guarantee that the investment objective of the Scheme will be achieved.
|Rs 500 and in multiples of Re 1/- thereafter. Additional Purchase Rs 500/- and in multiples of Re. 1 thereafter.
|Rs 10/- per unit
|CRISIL IBX 50:50 Gilt Plus SDL Index – April 2028
|September 28, 2022
|October 12, 2022
(Source: Scheme Information Document)
The investment strategy for Aditya Birla Sun Life CRISIL IBX 50:50 Gilt Plus SDL Apr 2028 Index Fund will be as follows:
Aditya Birla Sun Life CRISIL IBX 50:50 Gilt Plus SDL Apr 2028 Index Fund will replicate income over the target maturity period of its underlying Index, i.e., CRISIL IBX 50:50 Gilt Plus SDL Index – April 2028, subject to tracking errors. Accordingly, the scheme will invest in securities in line with the benchmark index of the scheme.
The scheme shall be considered to be replicating the underlying Index, provided:
- The duration of the portfolio of the scheme replicates the duration of the underlying Index within a maximum permissible deviation of +/-10%.
- The following norms for permissible deviation in duration shall apply:
- For a portfolio with residual maturity of greater than 5 years: Either +/-6 months or +/-10% of duration, whichever is higher.
- For a portfolio with residual maturity of up to 5 years: Either +/-3 months or +/-10% of duration, whichever is higher.
- However, at no point in time the residual maturity of any security forming part of the portfolio shall be beyond the target maturity date of the scheme.
The scheme will also invest in money market instruments in line with the asset allocation defined.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation for Aditya Birla Sun Life CRISIL IBX 50:50 Gilt Plus SDL Apr 2028 Index Fund
|Indicative Allocations (% of Net Assets)
|Instruments forming part of the CRISIL IBX 50:50 Gilt Plus SDL Index – April 2028
|Cash and Debt/Money Market Instruments
(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 the Amount Outstanding
- The minimum Amount Outstanding should be Rs. 25,000 crores
- 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’s the list of constituent issuers under the CRISIL IBX 50:50 Gilt Plus SDL Index – April 2028:
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 Aditya Birla Sun Life CRISIL IBX 50:50 Gilt Plus SDL Apr 2028 Index Fund?
Mr Mohit Sharma and Mr Sanjay Godambe will be the designated fund managers for this scheme.
Mr Mohit Sharma has completed his PGDCM from IIM Calcutta and B Tech from IIT Madras. He has an overall experience of around 13 years, of which 10 years are in financial markets. Prior to joining ABSL AMC, he ran his own healthcare-tech business and worked as an Interest Rates Trader in Standard Chartered Bank and ICICI Bank Ltd. He started his career in Equity Research in Irevna Ltd.
At ABSL Mutual Fund, Mr Sharma currently manages Aditya Birla Sun Life Low Duration Fund, Aditya Birla Sun Life Money Manager Fund, Aditya Birla Sun Life Dynamic Bond Fund, Aditya Birla Sun Life Short Term Fund, Aditya Birla Sun Life Medium Term Plan, Aditya Birla Sun Life Interval Income Fund – Quarterly Plan – Series I, Aditya Birla Sun Life Balanced Advantage Fund, Aditya Birla Sun Life Credit Risk Fund, Aditya Birla Sun Life Fixed Term Plan – Series TI (1837 days), Aditya Birla Sun Life Fixed Term Plan – Series TJ (1838 days), Aditya Birla Sun Life Fixed Term Plan – Series TS (91 days), Aditya Birla Sun Life Fixed Term Plan – Series TT (153 days), Aditya Birla Sun Life Nifty SDL Plus PSU Bond Sep 2026 60:40 Index Fund, Aditya Birla Sun Life Fixed Term Plan- Series TQ (1879 days), Aditya Birla Sun Life CRISIL IBX 60:40 SDL + AAA PSU – Apr 2025 Index Fund and Aditya Birla Sun Life CRISIL IBX 60:40 SDL + AAA PSU – Apr 2027 Index Fund.
Mr Sanjay Godambe has completed his Diploma in Finance Management and is a B. Com graduate. He has an experience of over 14 years in the area of finance, Mutual Fund dealing and its related activities (including fixed-income dealing). He possesses proficient knowledge in Capital markets, i.e., in Government Securities, Corporate Bonds, Certificate of Deposits and Commercial Papers. He also has prior experience of managing operations and implementing strategies towards enhancing market penetration, business volumes and growth.
At ABSL Mutual Fund, Mr Godambe currently manages Aditya Birla Sun Life CRISIL IBX AAA – Jun 2023 Index Fund.
Fund Outlook – Aditya Birla Sun Life CRISIL IBX 50:50 Gilt Plus SDL Apr 2028 Index Fund
Aditya Birla Sun Life 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 through investments in G-Sec and SDL.
The fund will invest in government-backed securities with a pre-defined maturity period. It reduces credit risk for investors and provides an opportunity to build their debt portfolio at a low cost. 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.
Although the scheme invests in government-backed securities with low credit risk, it is still prone to interest rate risks. In addition, the recent 50 basis point increase in interest rates by the RBI maintains the rising interest rate environment, which is unfavourable for debt funds. If there are adverse developments, such as a worsening geo-political scenario, rising inflation, and a massive increase in government borrowings, bond yields can go up further, and investors should be prepared for some volatility. These factors, among others, may have an adverse impact on the scheme’s performance.
The fortune of this scheme will depend on the performance of the underlying Index. Thus, Aditya Birla Sun Life 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