Will IDFC CRISIL IBX 90:10 SDL Plus Gilt– April 2032 Index Fund Boost Your Debt Portfolio Returns?

Nov 26, 2022 / Reading Time: Approx. 11 min

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Target Maturity Funds are flexible and offer a range of tenures with the goal of locating yield pockets that appear attractive at a given point in time. The structure of Target Maturity Index Funds works on decreasing residual maturity, which means each passing year, the maturity of the underlying bonds keeps reducing. In this way, the duration risk keeps going down, even as a defined maturity date approaches, making the returns from this fund predictable.

Target Maturity Funds, which are managed passively and have a predetermined maturity, have lately been launched by several fund houses. While SDLs offer returns comparable to AAA bonds, G-secs offer strong liquidity with the added benefit of high quality. As the RBI tightened policy in line with other central banks worldwide to curb inflation since the beginning of the year, rates have gone up throughout the curve. Investors can take advantage of these relatively high yields by investing in Target Maturity Funds.

What are Target Maturity Funds?

Target maturity funds are passive investments in bonds based on the composition of the underlying index. These funds help investors navigate the risks associated with debt funds better by aligning their portfolios with the pre-defined maturity date of the fund.

 

IDFC Mutual Fund has launched IDFC CRISIL IBX 90:10 SDL Plus Gilt- April 2032 Index Fund, it is an open-ended Target Maturity Index Fund investing in constituents of CRISIL IBX 90:10 SDL plus Gilt Index - April 2032.

On the launch of this fund, Mr Vishal Kapoor, CEO at IDFC Asset Management Company Ltd., said, "On an absolute level, the 10-year and 5-year SDL yields have moved up in the last few months and stand at 7.94% and 7.74% as on October 2022, providing a compelling opportunity for investors. Additionally, these debt instruments provide the benefit of an implicit sovereign guarantee, thereby reducing any risk of default."

Table 1: Details of IDFC CRISIL IBX 90:10 SDL Plus Gilt- April 2032 Index Fund

Type An open-ended Target Maturity Index Fund investing in constituents of CRISIL IBX 90:10 SDL plus Gilt Index - April 2032 with Relatively High-Interest Rate Risk and Relatively Low Credit Risk. Category Index Fund
Investment Objective The investment objective of the scheme is to provide investment returns corresponding to the total returns of the securities as represented by the CRISIL IBX 90:10 SDL plus Gilt Index - April 2032 before expenses, subject to tracking errors. However, there can be no assurance or guarantee 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
  • Direct
  • Regular
Options
  • Growth
  • Income Distribution cum capital withdrawal (IDCW)
Entry Load Not Applicable Exit Load Nil
Fund Manager
  • Mr Gautam Kaul
  • Mr Harshal Joshi
Benchmark Index CRISIL IBX 90:10 SDL plus Gilt Index - April 2032
Issue Opens November 14, 2022 Issue Closes November 28, 2022
(Source: Scheme Information Document)
 

What will be the investment strategy for IDFC CRISIL IBX 90:10 SDL Plus Gilt- April 2032 Index Fund?

IDFC CRISIL IBX 90:10 SDL Plus Gilt- April 2032 Index Fund is a target maturity fund which will employ an investment approach designed to track the performance of CRISIL IBX 90:10 SDL plus Gilt Index - April 2032.

The scheme would seek to invest in the securities forming part of the underlying index. Where the scheme is not able to replicate the benchmark index completely on account of the non-availability of the issuances of the issuer forming part of the benchmark index, the scheme would adhere with the requirements stipulated in SEBI Circular dated May 23, 2022, and other SEBI Guidelines/Circulars issued from time to time.

Will IDFC CRISIL IBX 90:10 SDL Plus Gilt– April 2032 Index Fund Boost Your Debt Portfolio Returns?
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How will the scheme allocate its assets?

Accordingly, the scheme will invest 95% to 100% of its portfolio in State Development Loans (SDLs) and in Indian Government Bonds, replicating the portfolio of CRISIL IBX 90:10 SDL Plus Gilt- April 2032. The scheme may also invest in money market instruments to meet liquidity requirements.

Table 2: Asset Allocation for IDFC CRISIL IBX 90:10 SDL Plus Gilt- April 2032 Index Fund

Instruments Indicative Allocations (% of Net Assets) Risk Profile
Minimum Maximum High/Medium/Low
- SDLs securities forming part of the SDL portion of CRISIL IBX 90:10 SDL plus Gilt Index - April 2032
- G-Secs securities forming part of the G-Sec portion of CRISIL IBX 90:10 SDL plus Gilt Index - April 2032
95 100 Low to Medium
Cash, Money Market Instruments 0 5 Low to Medium
(Source: Scheme Information Document)
 

About the benchmark

CRISIL IBX 90:10 SDL Plus Gilt Index - April 2032 seeks to track the performance of large G-Sec and SDL issuers near to the maturity date of the index. The index will mature on 05th April 2032, and the weights assigned to the constituents are SDL: 90% and G-Sec: 10%. The eligibility criteria for issuers selection:

  • States with a minimum amount outstanding of Rs. 7,500 crores in the eligible period shall be shortlisted.

  • States with a GSDP ratio (Total Outstanding Liability /Gross State Domestic Product ratio) of less than 45

  • The top 8 issuers out of the shortlisted issuers shall be selected based on composite liquidity score.

  • The Composite Liquidity score will be calculated based on the Liquidity score (70%) and Amount Outstanding score (30%) in the previous quarter.

  • The Liquidity score will be calculated based on the volume traded (70%), number of trades (15%) and days traded (15%) in the previous quarter.

Here's the list of constituent issuers under the CRISIL IBX 90:10 SDL Plus Gilt Index - Apr 2032 as on October 31, 2022:

(Source: Scheme Information Document)
 

# Note that the index will rebalance on a quarterly basis.

Who will manage IDFC CRISIL IBX 90:10 SDL Plus Gilt- April 2032 Index Fund?

Mr Gautam Kaul and Mr Harshal Joshi will be the designated fund managers for this scheme.

Mr Gautam Kaul is an MBA and B.com graduate, and he has an overall experience of 20 years in the financial services industry. Prior to joining IDFC AMC, he was associated with Edelweiss Asset Management Company Ltd. as Fund Manager, IDBI Asset Management Company Ltd. as Fund Manager and with Religare Asset Management Company Ltd., Sahara Asset Management Company Ltd. and Mata Securities India Private Ltd.

At IDFC Mutual Fund, Mr Kaul currently manages IDFC Corporate Bond Fund, IDFC Banking & PSU Debt Fund, IDFC Crisil Gilt 2027 Index Fund, IDFC Crisil Gilt 2028 Index Fund, IDFC Crisil IBX Gilt April 2026 Index Fund and IDFC Money Manager Fund.

Mr Harshal Joshi has completed his PGDBM and has experience spanning over 14 years in the Mutual Fund industry. Before joining IDFC AMC, he was working with ICAP India Pvt. Ltd. (2006 to 2007). At IDFC Mutual Fund, Mr Joshi currently manages IDFC Arbitrage Fund, IDFC Equity Savings Fund, IDFC Transportation and Logistics Fund, IDFC All Season Bond Fund, IDFC Cash Fund, IDFC Ultra Short Term Fund, IDFC Government Securities Fund - Constant Maturity Plan, IDFC Low Duration Fund, IDFC CRISIL Gilt 2027 Index Fund, IDFC CRISIL Gilt 2028 Index Fund, IDFC Multi Cap Fund (Debt portion), IDFC Midcap Fund (Debt portion), IDFC US Equity Fund of Fund (Debt portion), IDFC Hybrid Equity Fund (Debt portion), IDFC Regular Savings Fund (Debt portion), IDFC Fixed Term Plans.

Should you invest in IDFC CRISIL IBX 90:10 SDL Plus Gilt- April 2032 Index Fund?

IDFC CRISIL IBX 90:10 SDL Plus Gilt- April 2032 Index Fund is a passively managed debt index fund that aims to replicate the performance of the CRISIL IBX 90:10 SDL Plus Gilt Index - April 2032, subject to tracking error. The scheme offers safety with relatively low credit risk through investments in G-Sec and SDL.

The fund will invest in G-Sec and SDLs that satisfy the underlying index's eligibility requirements and have a maturity date of April 5, 2032, in line with the index. The fund will invest in sovereign government-backed securities, lowering credit risk for investors and presenting a low-cost way for them to build their debt portfolio. When held until maturity, the scheme has no duration risk. Further, its roll-down strategy is conducive to the current interest rate environment. The scheme focuses on the rich steepness of the curve vs the shorter end. It aims on the long-duration target maturity segment, which looks attractive considering the 10-year and 5-year SDL yields have moved up.

Although the scheme invests in government-backed securities with low credit risk, it is still prone to high debt market and interest rate risks. In addition, the recent 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. 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, the scheme is suitable for investors with a moderate risk profile looking forward to building their Debt portfolio and ensuring an investment horizon to match the fund's portfolio duration.


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Warm Regards,
Mitali Dhoke
Research Analyst

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