Should You Invest in SBI CRISIL IBX Gilt Index - April 2029 and June 2036 Index Funds?
Mitali Dhoke
Sep 29, 2022
Listen to Should You Invest in SBI CRISIL IBX Gilt Index - April 2029 and June 2036 Index Funds?
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Investor curiosity and interest in debt mutual funds have certainly been on the rise. Passively managed debt funds with pre-defined maturity dates are called Target Maturity Funds. These funds simply replicate the Index and invest in bonds in a similar proportion as the underlying Index. Target Maturity Index Funds offer relatively better-yielding investments by taking advantage of spread assets, and the roll-down maturity feature helps achieve risk-adjusted performance.
Investors would find it comforting to have some consistency in their portfolio, given that interest rates are gradually rising. As a result, they try to invest in opportunities that would provide such stability. Traditional investing options provide stable returns, but they do not respond in real-time to changing interest rate scenarios. Target maturity funds (TMFs) may be a suitable addition to an investor's portfolio in this situation.
The combination of excessive liquidity/low rates and improving growth/elevated inflation/demand-supply imbalance has resulted in a steep yield curve. Investors can potentially benefit from the current steepness in rates by investing in Target Maturity Funds.
SBI Mutual Fund has launched two Target Maturity Funds - SBI CRISIL IBX Gilt Index - April 2029 Fund and SBI CRISIL IBX Gilt Index - June 2036 Fund. Both are open-ended Target Maturity Index Funds investing in constituents of CRISIL IBX Gilt Index - April 2029 and CRISIL IBX Gilt Index - June 2036.
Unveiling the funds, SBI Mutual Fund Deputy MD and chief business officer Mr DP Singh said, "These funds could be a good fit for investors under the current high interest-rate scenario as they provide the "opportunity to invest at current market yields. Since investors would stay invested till maturity, it can help them manage the risks linked to the interest rate cycles. The funds would predominantly invest in higher-rated assets like government securities, AAA-rated securities, and public sector undertaking (PSU) bonds. These funds will have higher liquidity than traditional investment avenues, as investors can enter and exit the scheme anytime, offering significant flexibility."
Table 1: Details for SBI CRISIL IBX Gilt Index - April 2029 Fund
| Type |
An open-ended Target Maturity Index Fund investing in constituents of CRISIL IBX Gilt Index - April 2029 Index. A relatively high-interest rate risk and relatively low credit risk. |
Category |
Debt Index Fund |
| Investment Objective |
The investment objective of the scheme is to provide returns that correspond to the total returns of the securities as represented by the underlying index, subject to tracking error. There is no guarantee or assurance that the investment objective of the scheme will be achieved, and the scheme doesn't assure or guarantee any returns. |
| Min. Investment |
Rs 5,000 and in multiples of Re 1/- thereafter. Additional Purchase Rs 1,000/- and in multiples of Re. 1 thereafter. |
Face Value |
Rs 10/- per unit |
| SIP/SWP/STP |
Available |
|
|
| Plans |
|
Options |
- Growth
- Income Distribution cum capital withdrawal (IDCW)
|
| Entry Load |
Not Applicable |
Exit Load |
- 0.15% if redeemed on or before 30 days from the date of allotment
- Nil - after 30 days from the date of allotment
|
| Fund Manager |
Mr Dinesh Ahuja |
Benchmark Index |
CRISIL IBX Gilt Index - April 2029 |
| Issue Opens |
September 26, 2022 |
Issue Closes |
October 03, 2022 |
(Source: Scheme Information Document)
Table 2: Details for SBI CRISIL IBX Gilt Index - June 2036 Fund
| Type |
An open-ended Target Maturity Index Fund investing in constituents of CRISIL IBX Gilt Index - June 2036 Index. A relatively high-interest rate risk and relatively low credit risk. |
Category |
Debt Index Fund |
| Investment Objective |
The investment objective of the scheme is to provide returns that closely correspond to the total returns of the securities as represented by the underlying index, subject to tracking error. However, there is no guarantee or assurance that the investment objective of the scheme will be achieved. |
| Min. Investment |
Rs 5,000 and in multiples of Re 1/- thereafter. Additional Purchase Rs 1,000/- and in multiples of Re. 1 thereafter. |
Face Value |
Rs 10/- per unit |
| SIP/SWP/STP |
Available |
|
|
| Plans |
|
Options |
- Growth
- Income Distribution cum capital withdrawal (IDCW)
|
| Entry Load |
Not Applicable |
Exit Load |
- 0.15% if redeemed on or before 30 days from the date of allotment
- Nil - after 30 days from the date of allotment
|
| Fund Manager |
Mr Dinesh Ahuja |
Benchmark Index |
CRISIL IBX Gilt Index - June 2036 |
| Issue Opens |
September 22, 2022 |
Issue Closes |
October 03, 2022 |
(Source: Scheme Information Document)
The investment strategy for SBI CRISIL IBX Gilt Index - April 2029 and SBI CRISIL IBX Gilt Index - June 2036 will be as under:
SBI CRISIL IBX Gilt Index - April 2029 will track CRISIL IBX Gilt Index - April 2029, and SBI CRISIL IBX Gilt Index - June 2036 will track CRISIL IBX Gilt Index - June 2036. Both schemes will use a "passive" or indexing approach to endeavour to achieve the scheme's investment objective.
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Unlike other funds, these schemes will not try to "beat" the market it tracks and do not seek temporary defensive positions when the market decline or appear overvalued. The AMC does not make any judgments about the investment merit of a particular security, nor will it attempt to apply any economic, financial or market analysis. Indexing eliminates active management risks with regard to over/underperformance vis-a-vis a benchmark.
Since the schemes are target maturity index funds, they will only invest in the securities constituting the underlying Index. These schemes may also invest a portion of their portfolio in government securities maturing on or before the maturity date of the scheme, money market instruments including triparty repo and units of liquid mutual fund to manage the liquidity requirement.
Under normal circumstances, the asset allocation will be as under:
Table 3: Asset Allocation for SBI CRISIL IBX Gilt Index - April 2029 Fund
| Instruments |
Indicative Allocation (% of net assets) |
Risk Profile |
| Minimum |
Maximum |
High/Medium/Low |
| Securities covered by CRISIL IBX Gilt Index - April 2029 |
95 |
100 |
Medium to High |
| Government Securities maturing on or before the maturity date of the Scheme, Money Market instruments including Triparty Repo and units of liquid mutual fund |
0 |
5 |
Low |
(Source: Scheme Information Document)
Table 4: Asset Allocation for SBI CRISIL IBX Gilt Index - June 2036 Fund
| Instruments |
Indicative Allocation (% of net assets) |
Risk Profile |
| Minimum |
Maximum |
High/Medium/Low |
| Securities covered by CRISIL IBX Gilt Index - June 2036 |
95 |
100 |
Medium to High |
| Government Securities maturing on or before the maturity date of the Scheme, Money Market instruments including Triparty Repo and units of the liquid mutual fund. |
0 |
5 |
Low |
(Source: Scheme Information Document)
About the benchmark
CRISIL-IBX Gilt Index - April 2029 seeks to track the performance of G-Sec securities maturing near the maturity date of the Index, which is 30 April 2029.
CRISIL-IBX Gilt Index - June 2036 seeks to track the performance of G-Sec securities maturing near the maturity date of the Index, which is 30 June 2036. The target maturity index follows security selection as below:
-
Only fixed coupons bearing plain vanilla G-Sec will be eligible for the Index
-
All eligible securities shall be selected on the basis of Amount Outstanding as evaluated during the inception date of the Index.
-
Government securities with a minimum outstanding of Rs. 5,000 crores.
-
The index constituents shall be valued on a daily basis using CRISIL Valuations
Here's the list of constituent issuers under the CRISIL-IBX Gilt Index - April 2029 and CRISIL-IBX Gilt Index - June 2036:
(Source: SBI CRISIL IBX Gilt Index - April 2029 Fund - SID)
(Source: SBI CRISIL IBX Gilt Index - June 2036 Fund - SID)
Note that the index constituents will be reviewed on a quarterly basis, and the eligible securities will be added on a quarterly basis.
Who will manage SBI CRISIL IBX Gilt Index - April 2029 and SBI CRISIL IBX Gilt Index - June 2036?
The designated fund manager for these schemes will be Mr Dinesh Ahuja. He has completed his MMS degree and graduation in B.com and has an overall experience of 22 years in Indian financial services and capital markets in various capacities. He has rich experience in managing debt schemes. Prior to joining SBI AMC, he was associated with L&T Investment Management Ltd., Reliance Asset Management Ltd. and Reliance General Insurance Co. Ltd.
At SBI Mutual Fund, Mr Ahuja currently manages, SBI Magnum Income Fund, SBI Magnum Gilt Fund, SBI Dynamic Bond Fund, SBI Magnum Medium Duration Fund, SBI Magnum Constant Maturity Fund, SBI Equity Hybrid Fund (debt portion), SBI Retirement Benefit Fund (debt portion), SBI-ETF 10 year Gilt, SBI Balanced Advantage Fund and SBI Magnum Children's Benefit Fund - Investment Plan.
Fund Outlook - SBI CRISIL IBX Gilt Index - April 2029 Fund and SBI CRISIL IBX Gilt Index - June 2036 Fund
SBI CRISIL IBX Gilt Index - April 2029 Fund and SBI CRISIL IBX Gilt Index - June 2036 Fund are passively managed debt index funds that aim to replicate the performance of the CRISIL IBX Gilt Index - April 2029 and June 2036, subject to tracking error. The schemes offer safety with relatively low credit risk by investments in G-Sec securities.
The funds will invest in government-backed securities with a pre-defined maturity period. The charm of these funds lies in the predictability of their returns. If investors hold these funds till maturity, they can expect to earn the indicative yields. The yield-to-maturity (YTM) metric indicates the expected return. The scheme provides investors with a portfolio of quality papers with no duration risk when held until maturity and offers better risk-adjusted performance and liquidity.
Although the schemes invest in government-backed securities with low credit risk, it is still prone to interest rate risks. In addition, the recent 50 basis point increase in interest rates 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, and investors should be prepared for some volatility in the near term. These factors, among others, may have an adverse impact on the scheme's performance.
The fortune of this scheme will depend on the performance of the underlying Index. Thus, SBI CRISIL IBX Gilt Index - April 2029 and June 2036 Funds are suitable for investors with moderate risk appetite seeking to invest in high credit quality bonds with good liquidity. Ensure that you have an
You can choose the Target Maturity Index Fund variant between April 2029 and June 2036 based on your investment horizon suitable to the pre-defined maturity period of the fund.
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Warm Regards,
Mitali Dhoke
Jr. Research Analyst