ICICI Mutual Fund, ABSL MF come with new target maturity debt funds

The NFOs will track bond indices that have different maturity date, slight change in composition but both have focus on SDL allocation

Staff Writer   /   September 16, 2021

ICICI Prudential Mutual Fund has announced the launch of ICICI Prudential PSU Bond plus SDL 40:60 Index Fund -– Sep 2027, a target maturity index scheme investing in the constituents of Nifty PSU Bond Plus SDL Bond Sep 2027 40:60 Index. On the same day, Aditya Birla Sun Life AMC announced the launch of Aditya Birla Sun Life Nifty SDL Plus PSU Bond Sep 2026 60:40 Index Fund. It is an open ended scheme tracking the Nifty SDL Plus PSU Bond Sep 2026 60:40 Index. Here we take a detailed look at both the NFOs.

ICICI Pru PSU Bond plus SDL 40:60 Index Fund -– Sep 2027

In the portfolio, the proportion of investment into AAA rated bonds issued by government owned entities and SDLs will be in the ratio of 40:60. The bonds which will be a part of this portfolio will be maturing during the six month period ending September 30, 2027. The index will be reviewed every quarter and the weights of each issuer in the index will be capped at 15%.

The Nifty PSU Bond Plus SDL Bond Sep 2027 40:60 Index seeks to measure the performance of portfolio of AAA rated bonds issued by government owned entities and SDLs maturing during the six-month period ending September 30, 2027.

Investors should consider ICICI Prudential PSU Bond plus SDL 40:60 Index Fund as it provides exposure to Government backed instruments like PSUs & SDLs, if held for more than 36 months, tax is applicable at 20% with indexation (excluding applicable
surcharge and cess), can be an alternative traditional investments to park surplus money and to meet a medium term goal in line with the maturity period.

The NFO opens September 16, 2021, and closes on September 27, 2021.

Chintan Haria, Head- Product Development & Strategy, ICICI Prudential AMC said, “ICICI Prudential PSU Bond plus SDL Bond Sep 2027 40:60 Index is a target maturity open ended fund which provides investors exposure to a portfolio of 8 PSU bonds issued by government
owned entities and 20 SDLs issued by States/UTs. This is suitable for investors seeking exposure to a fixed income instrument and for investors having a medium-term investment horizon in line with the index’s maturity period.”

ABSL Nifty SDL Plus PSU Bond Sep 2026 60:40 Index Fund

This debt index fund marks Aditya Birla Sun Life Mutual Fund’s foray into passive offerings in the fixed income space.

This would be an open ended scheme tracking the Nifty SDL Plus PSU Bond Sep 2026 60:40 Index. The NFO opens on September 15, 2021 and closes on September 23, 2021.

The fund has a defined maturity date with a target maturity of September 30, 2026, with a diversified portfolio of AAA rated PSU Bonds and SDLs maturing on or before scheme maturity. Since it is an index fund its portfolio will seek to replicate the performance of Nifty SDL Plus PSU Bond Sep 2026 60:40 Index. 
The portfolio index will comprise of 60% SDLs of top 10 states/Union Territories and 40% of top 10 AAA rated PSU bonds curated on the basis of credit quality and liquidity scores. It will endeavor to hold bonds till their maturity with an aim to provide stable and predictable returns. Subsequently, there will be a quarterly rebalancing and review of the index constituents.
The portfolio of ABSL Nifty SDL plus PSU Bond Sep 2026 60:40 Index Fund is designed to mature on 30th September 2026 and currently offers 5 year indexation benefit for investors coming in before 30th Sept 2021.

A. Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC Limited said, “With yields becoming more attractive and inflation numbers cooling, investors’ real returns have gone up. Investors can potentially benefit from the current steepness in rates with the safety and liquidity of debt funds. In a short and medium term investment horizon, the spreads for 5 years appear attractive, especially for SDLs, compared to G-Secs, mainly driven by higher state borrowings as percentage of overall borrowing. A mix of SDLs and AAA PSU Bonds can provide reasonably better returns along with safety and liquidity of an open ended fund. A roll down strategy is being employed to take benefits of reasonable yields”.

What are target maturity funds

A target maturity fund has a specified maturity date that aligns with the maturity date of the bonds it has in its portfolio. This helps such funds provide predictive and stable returns. At maturity an investor will get back their investment proceeds.

If the target maturity fund is a passively managed index fund, one can buy and sell any time through the AMC during the tenure of the fund.

Indexation is an efficient way to reduce tax on returns by adjusting it for inflation. Indexation allows an investor to adjust buying price of one’s investment with inflation, thus making it more tax efficient. It is applied to long term returns on one’s investments. Higher inflation means higher indexed purchase price, which means lower notional capital gains and lower tax. Long term capital gains are eligible for taxation at 20% post indexation in debt mutual funds if held more than three years.

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