Invesco MF has launched Invesco India Medium Duration Fund, an open ended medium term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 3 years and 4 years. Medium duration funds are suitable for investments with a horizon of more than 3 years. They can be a replacement for long-term bank fixed deposits, though mutual funds offer no guaranteed income or principal protection. The medium duration fund category has 15 existing schemes which put together manage Rs 30,000 crore. Â
Invesco India Medium Duration Fund will invest in debt and money market securities with majority of the exposure to bonds which will mature between 3 -5 years.
Over 75-85 per cent of exposure will be to â€˜AAAâ€™ / Government Securities (G-Secs) / Cash & Equivalent: Of these, 60â€“75 per cent of the portfolio will be to securities having high secondary market liquidity. To generate additional yield, the fund will tactically invest 10-25 per cent in bonds with moderate secondary market liquidity. Approximately 15â€“25 per cent of the portfolio will be invested in select AA+/AA/AA- rated bonds depending on the credit environment which will have the potential to enhance yields.
The fund will use in-house comprehensive credit assessment framework to identify issuers with upside credit metrics with an aim to capture credit spread compression or issuers in certain sectors with upside potential to benefit from sector spread compression.
The fund will have selective and controlled credit exposure i.e. no exposure below AA-rated papers.
As per the asset allocation pattern, the scheme is allowed to invest 100 per cent of its net assets in debt (including government securities) & money market instruments across rating and across maturities such that Macaulay duration of the portfolio is between 3 year to 4 years. However, based on the current market conditions & yield curve, the scheme will invest in government securities, AAA, select AA+/AA/AA- rated bonds and cash & equivalent. The above strategy is based on current views and is subject to change from time to time.
Why invest now
The RBI is expected to continue playing the pivotal role of supporting economic growth through various measures including its accommodative policy stance and commitment to keep systemic liquidity in surplus.
Ample systemic liquidity and favorable demand-supply dynamics remains supportive of the short-end of the yield curve.
Invesco MF feels that 3 to 5 year segment of the yield curve provides attractive opportunity from risk-reward perspective. Spreads remain elevated between AAA and AA rated bonds, making a mix of selective such papers a good strategy.
Other fund details
Minimum investment – Rs 1,000
Plans/options – Regular and direct; Growth Option, Income Distribution cum Capital Withdrawal (IDCW) option â€¢ IDCW Payout- Quarterly, Discretionary â€¢ IDCW Reinvestment – Quarterly, Discretionary
Load – no entry or exit load
Fund managers – Vikas Garg and Krishna Cheemalapati
Benchmark – CRISIL Medium Term Debt Index
Invesco debt track-record
Invesco MF has had nil exposure to any downgraded securities in the last 24 months. It also has nil exposure in any sensitive sectors like promoter funding, loan against shares, wholesale oriented NBFCs, real estate and MFIs. Additionally, it has nil exposure in any bank perpetuals across any scheme. More than 50 percent of Invesco debt portfolios are invested in sovereign or quasi-sovereign entities and within the private sector, it has restricted exposure to predominantly bluechip AAAs.
Category historical returns
In the past 1 year period, medium duration funds have given an average 6 per cent return. The 3 year average return is subdued at 5.2 per cent CAGR while the 5 year return is 6.6 per cent CAGR. However, the average returns can be misleading because there is great variation among top and bottom performers. For instance, in the 1 year period, the best fund is ABSL Medium Term fund with 14.5 per cent while the bottom one is UTI Medium Term with 0.94 per cent return. Similarly, in the 3 year period, the best performer is SBI Magnum Medium Duration with 9.65 per cent CAGR while the laggard is Nippon India Strategic Debt with minus 8.25 per cent CAGR. The story is same for 5 year period as well.
Ideal for which investors
If you are willing to invest, Invesco India Medium Duration Fund can be part of your core allocation to fixed income portfolio. Since it targets medium to long term investment horizon, you may enjoy steady returns over medium term. Do note that since the fund aims for relatively high yield, so it is suited for investors with slightly higher risk appetite. However, risks will be controlled with selective and controlled credit exposure viz. investment in sovereign, AAA and select AA papers.