Indiabulls Mutual Fund is out with a new open-ended debt scheme, Indiabulls Banking & PSU Debt Fund (IBPDF). This fund will invest predominantly invest in debt instruments of banks, public sector undertakings, public financial institutions and municipal bonds.
A banking and PSU fund is a category of debt mutual fund that emerged after the SEBI's recategorization norms that will invest a minimum 80% of its assets in debt instruments of banks, PSUs, and PFIs.
IBPDF will invest within the prescribed limits and may allocate some portion to debt and money market instruments issued by other entities, government securities issued by central and state government and units issued by REITs and InvITs.
Usually, this type of fund invests primarily in the bank certificate of deposits or bonds and debentures of public entities that are 'AAA' rated, are comparatively less risky than bonds which are AA rated. And are good investment options, as market-related volatility is relatively lower than long-duration funds.
After several major corporates defaulting, debt funds investment was losing its sheen and making investors aware that debt fund investment isn't risk-free. Indiabulls sought this as an opportunity to offer Indiabulls Banking & PSU Debt Fund as the risk is less and will try to generate returns higher than bank fixed deposits for a short to medium duration of investment, i.e. 3 to 5 years.
[Read: Are You Holding Debt Mutual Funds With Stressed Assets?]
Type | An open-ended debt scheme predominantly investing in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds. | Category | Banking & PSU Debt Fund |
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Investment Objective | To generate income over short to medium term horizon through investments in debt and money market instruments of various maturities, consisting predominantly of securities issued by entities such as Banks, Public Sector Undertakings (PSUs) and Public Financial Institutions (PFIs). However, there can be no assurance that the investment objective of the scheme will be achieved. The Scheme(s) does not assure or guarantee any returns. |
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Min. Investment | Rs 500 and in multiples of Re 1 thereafter | Face Value | Rs 10 per unit |
Plans |
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Options |
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Entry Load | Nil | Exit Load |
If redeemed/switched
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Fund Manager | Mr Vikrant Mehta | Benchmark Index | CRISIL Banking and PSU Debt Index |
Issue Opens: | April 25, 2019 | Issue Closes: | May 09, 2019 |
Under normal circumstances, the scheme's asset allocation will be as under:
Instruments | Indicative Allocation (% of Total Assets) Minimum - Maximum |
Risk Profile (High/ Medium/ Low) |
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Debt and Money Market Instruments issued by Banks, Public Sector Undertakings (PSUs) and Public Financial Institutions (PFIs) & Municipal Bonds | 80% to 100% | Low to Medium |
Debt and Money Market Instruments issued by other entities; Government Securities issued by Central & State Government | 0% to 20% | Low to Medium |
Units issued by REITs and InvITs | 0% to 10% | Low to Medium |
The Fund Manager would seek to enhance returns by trading on the shape of the yield curve in the short to the medium time frame and on the differentiated premia offered by the market to different issuers of debt. But it must be understood that there would be a trade-off in terms of their respective liquidity.
As the Funds objective to maximize returns without compromising on safety and liquidity, the portfolio would be constructed with a judicious mix of instruments issued by the universe of eligible issuers across the spectrum.
Portfolio maturity is determined after analysing the macroeconomic environment including;
The Investment Strategy would be a combination of Top Down and Bottom Up approach for investments.
These studies would help the Fund Manager in determining the duration call one has to take to construct the portfolio.
The scheme would also adopt a bottom-up approach for identifying investment opportunities in individual companies. Some of the key points while choosing a company would include:
Based on the above approaches, a Debt Investment Universe would be constructed. This would be the base for portfolio construction. Sovereign Debt i.e. Central Govt. Securities and State Govt. Securities would also be part of the investment universe. Investment in them would take place in accordance with the scheme's objectives.
As a result, the Fund stands to expose to market risk which can get captured partially by "mark to market component" thereby inducing potential daily volatility. Also, the Fund might have a mix of credits with moderately higher credit risk. The Fund will always aim at controlling risk by carrying a rigorous credit evaluation of the instruments proposed to be invested in.
Mr Vikrant Mehta shall be managing the Indiabulls Banking & PSU Debt Fund.
Mr Mehta is an M.S. in Engineering and a CFA from The Institute of Chartered Financial Analysts of India. He has an experience of more than 24 years in fixed income and emerging markets across fund management, macro research, trading and sales.
Prior to joining Indiabulls AMC, Mr Mehta worked with PineBridge Investments, where he was the Head of Fixed Income at PineBridge India AMC. Subsequently, he was a sovereign rate and currency specialist for Asia, in his role as an Asian sovereign analyst with PineBridge. His other work assignments have been with NVS Brokerage, JM Morgan Stanley and Mata Securities.
As mentioned earlier IBPDF is exposed to market risk, credit risk and interest rate risk as investment in Debt and Money Market Instruments is subject to price, credit, and interest rate risk. The Scheme may be affected, inter alia, by changes in the market conditions, interest rates, trading volumes, settlement periods and transfer procedure.
The fund manager will endeavour to manage credit risk through in-house credit analysis. Diversification and hedging will also be used for portfolio rebalancing purpose as a risk mitigation strategy to reduce the impact of undue market volatility on the Scheme's portfolio.
Currently, most of the major public and private banks are coping with the Non-performing assets (NPAs) and reporting losses owing to the default by many big corporates (IL&FS, Essel group, Anil Dhirubhai Ambani Group) and its subsidiaries.
Plus, it has been reported, that several fund houses had taken an exposure to these companies that have been downgraded to 'D' rating. Note that similar funds of the category do take an exposure to debt instruments which are below AAA rating to clock higher returns that involves high risk.
Investing aggressively at the longer end of the yield curve could prove imprudent and risky in the foreseeable future. Hence investing in short-term debt funds (shorter maturity papers) is more lucrative.
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Author: Aditi Murkute
This article first appeared on PersonalFN here.
PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.
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3 Responses to "Indiabulls Banking & PSU Debt Fund: Should You Bank On It?"
Sunil Badhe
May 8, 2019Remarkable Performance shown by the company, congratulations to you & with you.
Nitin Mehta
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