Axis AAA Bond Plus ETF NFO opens today; should you invest?

The target maturity debt ETF, specifically designed to terminate at a pre-defined date, will invest in a portfolio of high quality debt instruments

Staff Writer   /   April 23, 2021

Axis Mutual Fund, one of the fastest growing fund houses in India, has announced the launch of their new fund offer – ‘Axis AAA Bond Plus SDL ETF 2026 Maturity’. It is a target maturity ETF – a portfolio, specifically designed to terminate at a pre-defined date – that will invest in a portfolio of high quality debt instruments. The new fund offer (NFO) opens for subscription from April 23, 2021 to May 7, 2021.  Given that this is a new product, here is a primer on the product. Read on.

What is Axis AAA Bond Plus SDL ETF – 2026 Maturity 

This is an open-ended Target Maturity Exchange Traded Fund investing predominantly in constituents of Nifty AAA Bond Plus SDL Apr 2026 50:50 index.

An ETF is a mutual fund designed to track the performance of an index. This is achieved by closely replicating the portfolio of the underlying index. ETFs trade in bite sized units on an exchange at market determined prices. While traditionally in India it is the equity and gold ETFs that have been popular, debt ETFs are fast making a space for themselves. Debt ETFs offer investors a great combination of stability and liquidity.

The benchmark index has a maturity date of April 30, 2026. Further the composition of the benchmark is an equal allocation towards AAA securities and SDLs, thus offering investors with a very high credit quality and diversified portfolio.

How does a target maturity ETF work

A target maturity ETF is a portfolio designed to terminate at a predefined date.

The fund manager achieves this by buying securities with similar maturities as close to the defined maturity date and holds them to maturity.

As time passes, the ETF may add securities that meet the methodology criteria. As the ETF progresses the duration of the securities diminishes until the fund matures.

Thus, the strategy aims to negate any duration risk for investors who remain invested through the life of the ETF.

Why this product now

5 year yields have seen the maximum retracement since December 2020.

The run up in yields has resulted in the spread between 3 year AAA & 5 Year AAA papers trade at its highest level in 2 years.

Even for investors with a longer investment horizon the 5 year space is a compelling alternative since 5 year levels are trading at levels similar to comparable 10 year instruments.

High quality SDL’s also offer significant opportunities given that they trade at levels higher than AAA – PSU’s currently.

According to the fund-house, current yield levels provide adequate buffer for even shorter term investors.

What about the debt index

Nifty AAA Bond Plus SDL Apr 2026 50:50 Index is a portfolio of AAA rated bonds issued by government owned entities, HFCs, Corporates and State Development Loans (SDLs) maturing between May 01, 2025 to April 30, 2026. The index will be managed by NSE Indices Limited.

AAA rated bonds include those belonging to HDFC Ltd, REC Ltd, Indian Oil Corporation, Power Finance Corporation Ltd, Export Import Bank Of India and NTPC Ltd.

SDLS include those belonging to Gujarat Government, Karnataka Government, Maharashtra Government, Tamil Nadu Government, West Bengal Government and Uttar Pradesh Government.

Who is this product for

Axis AAA Bond Plus SDL ETF – 2026 Maturity will facilitate passive investing for debt investors by offering them a fund that has defined tenure close to 5 years.

The fund can be used by investors looking at a 5 year holding period but also by investors that want to take advantage of this strategy for shorter holding periods.

Thus, the Axis AAA Bond Plus SDL ETF – 2026 Maturity is a low-cost, hassle-free solution for investors looking to build their fixed income portfolio.

Top features of the fund

1. Opportunity – The 5 Year AAA space is offering an interesting opportunity given the selloff since December 2020.

2. Core Allocation – Ideal solution for investors looking to invest with a 5-year investment horizon

3. Product Mechanism – Low cost hassle free solution for investors looking to build their core fixed income portfolio

4. Simple and Easy – Exchange traded, high quality portfolio with the benefit of 5 years’ indexation

Fund-house speak

On the launch of the NFO, Chandresh Kumar Nigam, MD & CEO, Axis AMC said, “We want to develop, introduce and provide the products that are relevant in the current context. Accordingly, we recognize the need to offer investors a choice of strategies including robust passive products across all asset classes. The launch of Axis AAA Bond Plus SDL ETF – 2026 Maturity’ continues to take forward our endeavour to build up our passive product suite over time by offering investors an attractive debt strategy within the passive space.”

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Join Our Newsletter
Email
Name