ICICI Prudential PSU Bond Plus SDL 40:60 Index Fund: Should You Invest?

The debt-oriented Target Maturity Index Funds are passively managed investments in debt securities that aim to replicate the composition of the underlying index and have a specific maturity date. Target maturity funds offer predictable returns if you stay put until maturity.

ICICI Prudential Mutual Fund has rolled out ICICI Prudential PSU Bond plus SDL Bond Sep 2027 40:60 Index Fund. It is an open-ended target maturity Index Fund investing in the constituents of Nifty PSU Bond Plus SDL Sep 2027 40:60 Index.

On the launch of this fund Mr Chintan Haria, Head- Product Development & Strategy, ICICI Prudential AMC said, "For the benefit of our investors, we are adding a passive debt scheme to our debt bouquet. ICICI Prudential PSU Bond plus SDL Bond Sep 2027 40:60 Index Fund 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."

The investment strategy for ICICI Prudential PSU Bond Plus SDL 40:60 Index Fund will be as follows:

ICICI Prudential PSU Bond Plus SDL 40:60 Index Fund will predominantly invest in Bonds issued by AAA-rated government owned entities and SDLs issued by states/UTs. The scheme is a target maturity date Index Fund.

The scheme follows a passively managed investment approach designed to track the performance of Nifty PSU Bond Plus SDL Sep 2027 40:60 Index, subject to tracking errors. Accordingly, the scheme will invest in AAA-rated PSU bonds and SDLs. In the portfolio, the proportion of investment into AAA-rated bonds issued by government-owned entities and State Development Loans (SDL) will be in the ratio of 40:60.

The endeavour is to follow the buy-and-hold investment strategy in which existing SDLs will be held till maturity unless sold to meet redemption requirements and payment of dividends. The portfolio of eligible securities invested by the scheme is expected to have, in aggregate, fundamental characteristics such as modified duration, weighted average maturity, aggregate credit ratings, aggregate Yield-to-Maturity (YTM), etc., along with other liquidity parameters in line with Nifty PSU Bond Plus SDL Sep 2027 40:60 Index.

The index methodology is computed using the total return methodology including price return and coupon return. The proportion of debt securities under the index is AAA-rated government owned entities - 40% and SDLs - 60%. Equal weight is allocated to each component (PSU/SDL) as on the weightage base date of the index.

The index will be reviewed every quarter and the weights of each issuer in the index will be capped at 15%.

About the benchmark

The Nifty PSU Bond Plus SDL Sep 2027 40:60 Index follows a target maturity structure with a maturity date of September 30, 2027. The index portfolio has 40% allocation to AAA-rated bonds issued by Government of India owned entities and the other 60% includes State Development Loans (SDLs) as on the base date of the index. All constituent bonds in the index mature during the six-month period ending September 30, 2027.

The index provides investors exposure to a portfolio of 8 PSU bonds issued by government owned entities and 20 SDLs issued by States/UTs. It seeks to measure the performance of portfolio of AAA-rated bonds issued by government owned entities and SDLs maturing during the six months period ending September 30, 2027.

The following is a list of the top constituents under the index by their current weightage:

Under normal circumstances, the asset allocation will be as under:

*Money Market Instruments will include treasury bills and government securities having a residual maturity upto one year, Tri-Party Repos, Repo in government securities and treasury bills and any other like instruments as specified by the Reserve Bank of India from time to time.

@Excluding money in transit before deployment /Pay-out

Who will manage ICICI Prudential PSU Bond Plus SDL 40:60 Index Fund?

Ms Chandni Gupta and Mr Anuj Tagra will be the dedicated fund managers for this scheme.

Ms Chandni Gupta is Fund Manager at ICICI Prudential Asset Management Co. Ltd. She is a Chartered Financial Analyst (USA) and BE (Information Technology) and has over 13 years of work experience. Prior to joining ICICI AMC, she was associated with Morgan Stanley Investment Management, HSBC Bank, and Standard Chartered Mutual Fund.

The other schemes Ms Gupta manages are ICICI Prudential Capital Protection Oriented Funds, ICICI Prudential Banking & PSU Debt Fund, ICICI Prudential Multiple Yield Fund - Series 14 Plan A, ICICI Prudential Bond Fund, and ICICI Prudential Corporate Bond Fund.

Mr Anuj Tagra is Fund Manager - Fixed Income at ICICI Prudential Asset Management Co. Ltd. His qualification includes BBA (Honors) and MBA - Capital Markets and he has total work experience of around 12 years. Mr Anuj is associated with ICICI AMC since 2013 and prior to that, he has worked with Union Bank of India - Trader-Gsec and Fidelity Investments as Associate in operations.

The other schemes he manages are ICICI Prudential Corporate Bond Fund, ICICI Prudential MultiAsset Fund, ICICI Prudential Retirement Fund, ICICI Prudential Constant Maturity Gilt Fund, ICICI Prudential Long term Bond Fund, ICICI Prudential All seasons Bond Fund, and ICICI Prudential Gilt Fund.

Fund Outlook - ICICI Prudential PSU Bond Plus SDL 40:60 Index Fund

ICICI Prudential PSU Bond Plus SDL 40:60 Index Fund is a passively managed debt index fund that aims to replicate the performance of the Nifty PSU Bond Plus SDL Sep 2027 40:60 Index.

The scheme seeks to invest in 8 AAA-rated PSU Bonds & 20 State Development Loans under the index that matures on September 30, 2027. It provides investors exposure to Government-backed instruments like PSUs & SDLs, allows investors to buy/sell as required without any lock-in period. It assists you to meet medium-term financial goals in line with the maturity period.

This scheme will provide investors with a great mix of stability and liquidity compared to direct investment in bonds. The target maturity approach offers investors the benefit to invest in individual bonds/SDLs passively through Debt mutual fund structure.

Being an index fund, this scheme will follow passive investment style and mitigate the fund manager's role resulting in a lower expense ratio as compared to actively managed Debt mutual funds.

Although the investments in various high quality AAA-rated PSU bonds and SDLs comprising of the underlying index will diversify the portfolio risk and make the scheme less prone to credit risk. However, it may still carry some credit risk and interest rate risk depending on the instruments in the portfolio and dynamic market conditions.

This scheme is suitable for investors seeking exposure to a fixed income instrument and having a medium-term investment horizon in line with the index's maturity period. You must ensure to have a moderate risk profile to survive the volatility in the market.

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Warm Regards,
Mitali Dhoke
Jr. Research Analyst

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