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HomeMutual FundFund Profile: ICICI Prudential Financial savings Fund

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 Period 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 Period”, 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 danger is average, and the rate of interest danger is comparatively excessive. To grasp the Macaulay period, see the Fund profile: SBI Magnum Extremely Quick Period Fund.

It appears foolish for a fund with a comparatively high-interest price danger to be categorised as a “low period” fund, however there you’re!

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

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 not too long ago because of the price hike. The typical maturity has elevated over the past two years, however the modified period has remained unchanged. The fund has a mean maturity of  5.59 years and a modified period of solely 0.78Y.

SEBI RIA Avinash Luthria defined that this may very well 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 this can be a long run bond, since it’s a floating price bond, its worth won’t fluctuate as a lot due to rate of interest adjustments due to its variable coupon price. See, for instance: How Floating Price Debt Mutual Funds Cut back Curiosity Price Threat. The rate of interest swaps additionally render a portion of bonds as successfully floating-rate. Additionally see Curiosity Price Swaps: A approach for MFs to scale back rate of interest danger. 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 beneath. The Financial savings fund has a reasonably steady return profile for 5 years.

Five year rolling returns of ICICI Pru Savings Fund vs ICICI Pru Short Term Fund vs ICICI Pru Money Market Fund vs ICICI Pru Gilt Fund
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 beneath. The rise in publicity to above-5-year bonds is seen beneath. 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 beneath. A lot of the high-duration debt is from gilts. The credit score danger 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 will be thought-about 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 danger to trigger the NAV to wobble and the potential of credit score occasions. So one can not purchase and overlook however should maintain monitor of the portfolio through fund factsheets.

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