Target Maturity Funds are appropriate for investors who like the predictability of returns provided by bank deposits since they have a reduced relative interest rate risk and give more consistent and predictable returns. A Target Maturity Fund is the ideal option for investors with a predetermined investment horizon because the strategy is designed to eliminate any duration risk for investors who commit to the fund for its entire duration.
Many fund houses have recently launched Target Maturity Funds that are managed passively; such funds hold a bond-like structure with fixed maturity. These funds simply replicate the index and invest in debt securities in a similar proportion as the underlying index. Since the beginning of the year, yields have increased across the curve as the RBI has tightened policy in line with other central banks worldwide to curb inflation. Investing in Target Maturity Funds will allow investors to benefit from these comparatively high yields.
Nippon India Mutual Fund has launched Nippon India Nifty SDL Plus G-Sec – Jun 2028 Maturity 70:30 Index Fund. It is an open-ended Target Maturity Index Fund investing in constituents of the Nifty SDL Plus G-Sec Jun 2028 70:30 Index.
The scheme’s portfolio has dual filters for selecting SDLs. Instead of just applying a Liquidity Filter, there is an additional Quality Filter of low leverage. This Quality Filter is based on each State’s GDP in proportion to its total liabilities, and the top 10 States/UTs with the best quality scores will be selected. Hence, the portfolio will have a combination of highly liquid G-Secs and a selective list of SDLs with low leverage and high liquidity, all of which are maturing during the 12-month period ending June 30, 2028.
Table 1: Details for Nippon India Nifty SDL Plus G-Sec – Jun 2028 Maturity 70:30 Index Fund
|An open-ended Target Maturity Index Fund investing in constituents of Nifty SDL Plus G-Sec Jun 2028 70:30 Index. A relatively high-interest rate risk and relatively low credit risk
|The investment objective of the scheme is to provide investment returns corresponding to the total returns of the securities as represented by the Nifty SDL Plus G-Sec Jun 2028 70:30 Index before expenses, subject to tracking errors. However, there can be no assurance or guarantee that the scheme's investment objective will be achieved.
|Rs 1,000 and in multiples of Re 1/- thereafter. Additional Purchase Rs 1,000/- and in multiples of Re. 1 thereafter.
|Rs 10/- per unit
|Nifty SDL Plus G-Sec Jun 2028 70:30 Index
|November 07, 2022
|November 18, 2022
(Source: Scheme Information Document)
The investment strategy for Nippon India Nifty SDL Plus G-Sec – Jun 2028 Maturity 70:30 Index Fund will be as follows:
Nippon India Nifty SDL Plus G-Sec – Jun 2028 Maturity 70:30 Index Fund is a passively managed Index fund which will employ an investment approach designed to track the performance of the Nifty SDL Plus G-Sec Jun 2028 70:30 Index, subject to tracking errors. Accordingly, the scheme will invest in G-Secs and SDLs maturing within the maturity date of the scheme.
The scheme will follow the Buy and Hold investment strategy in which existing SDLs & G-Secs will be held till maturity unless sold to meet redemptions requirement. Pursuant to SEBI Circular no. SEBI/HO/IMD/DOF2/P/CIR/2022/69 dated May 23, 2022, scheme shall be considered to be replicating the underlying index, provided:
– 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 of time the residual maturity of any security forming part of the portfolio shall be beyond the target maturity date of the ETF/ Index Fund.
- The duration of the portfolio of ETF/ Index Fund replicates the duration of the underlying index within a maximum permissible deviation of +/- 10%.
- In the case of Target Maturity (or Target Date) ETFs/Index Funds, the following norms for permissible deviation in duration shall apply:
During normal circumstances, the scheme’s exposure to money market instruments will align with the asset allocation table. However, in case of maturity of SDLs/ G-secs 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 Nippon India Nifty SDL Plus G-Sec – Jun 2028 Maturity 70:30 Index Fund
|Indicative Allocations (% of Net Assets)
|State Development Loans (SDLs) representing the SDL portion of Nifty SDL Plus G-Sec Jun 2028 70:30 Index
|Low to Medium
|Government Securities representing the G-Sec portion of Nifty SDL Plus G-Sec Jun 2028 70:30 Index
|*Money Market Instruments, including cash and cash equivalents
*Money Market Instruments will include treasury bills and government securities having a residual maturity up to one year and Tri-Party Repos on Government securities or Treasury bills.
(Source: Scheme Information Document)
About the benchmark
Nifty SDL Plus G-Sec Jun 2028 70:30 Index seeks to measure the performance of a portfolio of State Development Loans (SDLs) and Government securities (G-Secs) maturing during the twelve months ending June 30, 2028. The proportion of investment into SDLs & G-Secs is in the ratio of 70:30.
SDL component: 20 SDLs issued by states/UTs are selected based on the highest total outstanding amount as on October 03, 2022, maturing during the twelve-month period ending June 30, 2028.
G-Sec component: From the eligible universe, G-Secs with a minimum outstanding amount of Rs 25,000 crores as on October 03, 2022, maturing during the twelve-month period ending June 30, 2028, are selected to be part of the index.
Here’s the list of top constituents under the Nifty SDL Plus G-Sec Jun 2028 70:30 Index as on October 03, 2022:
# Note that the index is reviewed semi-annually in June and December.
Who will manage Nippon India Nifty SDL Plus G-Sec – Jun 2028 Maturity 70:30 Index Fund?
Mr Vivek Sharma and Mr Siddharth Deb will be the designated fund managers for this scheme.
Mr Vivek Sharma has completed his B.E (Electronics) and holds PGDBM – Finance degree. He has an overall 15 years of experience in the financial services industry. He joined Nippon Asset Management India in 2006 as Management Trainee – Sales & Distribution, and he has been associated with them since then and currently is the Fund Manager for Nippon India Ultra Short Duration Fund, Nippon India Income Fund, Nippon India Corporate Bond Fund, Nippon India Short Term Fund, Nippon India Low Duration Fund, Nippon India Dynamic Bond Fund, Nippon India Banking & PSU Debt Fund, Nippon India ETF Nifty CPSE Bond Plus SDL 2024 Maturity, Nippon India ETF Nifty SDL Apr 2026 Top 20 Equal Weight, HYPERLINK “https://www.personalfn.com/factsheet/nippon-india-nifty-aaa-cpse-bond-plus-sdl-apr-2027-maturity-60:40-index-fund-g” Nippon India Nifty AAA CPSE Bond Plus SDL – Apr 2027 Maturity 60:40 Index Fund.
Mr Siddharth Deb holds a degree in B.Sc. and MMS in Finance; he has an overall experience of 14 years in the capital markets. Prior to joining NAM India, he was working with Goldman Sachs Asset Management (India) Private Limited as Executive Director, Managing fixed income debt ETF’s, Benchmark Asset Management Company Private Limited as Senior Manager and Fullerton India Credit Company Ltd. as Manager – Treasury, managing day-to-day treasury activities in the front office.
At Nippon India Mutual Fund, Mr Deb currently manages Nippon India ETF Nifty 1D Rate Liquid BeES, Nippon India ETF Hang Seng BeES, Nippon India ETF Nifty CPSE Bond Plus SDL Sep 2024 50:50, Nippon India ETF Nifty SDL Apr 2026 Top 20 Equal Weight, Nippon India ETF Nifty 8-13 yr G-Sec Long Term Gilt, Nippon India ETF Nifty 5 yr Benchmark G-Sec, Nippon India Liquid Fund, Nippon India Nifty AAA CPSE Bond Plus SDL – Apr 2027 Maturity 60:40 Index Fund and Nippon India Overnight Fund.
Fund Outlook – Nippon India Nifty SDL Plus G-Sec – Jun 2028 Maturity 70:30 Index Fund
Nippon India Nifty SDL Plus G-Sec – Jun 2028 Maturity 70:30 Index Fund aims to replicate the performance of the Nifty SDL Plus G-Sec Jun 2028 70:30 Index, subject to tracking errors. The scheme seeks to invest in G-Secs and State Development Loans (SDLs) under the index that matures on June 30, 2028.
The scheme invests in sovereign securities only, and the proportion of investment is 70:30 (i.e., 70% in SDLs and 30% in G-Secs). Further, its roll-down strategy is conducive to the current interest rate environment. The scheme provides investors with a mix of quality papers with better risk-adjusted performance and liquidity. Although the scheme may offer a low credit risk, it is still prone to high market and interest rate risks.
In addition, the frequent hike in interest rates and a further rise expected in December again 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. The interest rate risk amidst the dynamic market conditions is likely to have a bearing on the scheme’s performance. Investors should be prepared for some volatility in the near term.
The fortune of this scheme will depend on the performance of the underlying index. Thus, Nippon India Nifty SDL Plus G-Sec – Jun 2028 Maturity 70:30 Index Fund is suitable for investors with a moderate risk profile looking forward to building their Debt portfolio. Ensure your investment horizon aligns with the fund’s portfolio duration.
This article first appeared on PersonalFN here