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Tuesday, November 29, 2022

Fund Profile: ICICI Prudential Financial savings Fund


On this version of the debt fund profile, we have a look at ICICI Prudential Financial savings Fund. That is an open-ended Low Length debt scheme investing in devices such that the Macaulay period of the Portfolio is between 6 months and 12 Months.

The fund’s class, “Low Length”, offers one the impression that it’s appropriate for short-term wants.  Sadly, this isn’t true. If we have a look at the risk-class matrix, the credit score threat is average, and the rate of interest threat is comparatively excessive. To grasp the Macaulay period, see the Fund profile: SBI Magnum Extremely Quick Length Fund.

It appears foolish for a fund with a comparatively high-interest charge threat to be labeled as a “low period” fund, however there you might be!

The historic yield to maturity, common portfolio maturity and modified period (a measure of rate of interest sensitivity) are proven under.

YTM, average maturity and modified duration history of ICICI Pru Savings Fund
YTM, common maturity and modified period historical past of ICICI Pru Financial savings Fund

The yields have elevated lately because of the charge hike. The common maturity has elevated during the last two years, however the modified period has remained unchanged. The fund has a median maturity of  5.59 years and a modified period of solely 0.78Y.

SEBI RIA Avinash Luthria defined that this might be due to the dominant presence of floating-rate bonds and a few interest-rate swaps within the portfolio. For instance,  GOI FRB 22-Sep-2033. Though it is a long run bond, since it’s a floating charge bond, its worth is not going to fluctuate as a lot due to rate of interest adjustments due to its variable coupon charge. See, for instance: How Floating Fee Debt Mutual Funds Cut back Curiosity Fee Threat. The rate of interest swaps additionally render a portion of bonds as successfully floating-rate. Additionally see Curiosity Fee Swaps: A manner for MFs to cut back rate of interest threat. These have allowed the fund to purchase long-term bonds whereas holding the modified period low.

The five-year rolling returns of ICICI Pru Financial savings Fund, ICICI Pru Quick Time period Fund, ICICI Pru Cash Market Fund and ICICI Pru Gilt Fund are plotted under. The Financial savings fund has a reasonably secure return profile for 5 years.

5-year rolling returns of ICICI Pru Financial savings Fund vs ICICI Pru Quick Time period Fund vs ICICI Pru Cash Market Fund vs ICICI Pru Gilt Fund.

The maturity profile of the fund is proven under. The rise in publicity to above-5-year bonds is seen under. These bonds represent about half the portfolio.

Maturity profile history of ICICI Pru Savings Fund
Maturity profile historical past of ICICI Pru Financial savings Fund

Lastly, the credit standing historical past is proven under. A lot of the high-duration debt is from gilts. The credit score threat is non-zero however fairly low.

Credit rating history of ICICI Pru Savings Fund
Credit standing historical past of ICICI Pru Financial savings Fund

The fund may be thought of by those that want to make investments for 5 years or extra and even perhaps a much less risky alternative for gilt funds. Nevertheless, the portfolio has sufficient rate of interest threat to trigger the NAV to wobble and the potential for credit score occasions. So one can’t purchase and overlook however should maintain monitor of the portfolio by way of fund factsheets.

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