Get A Slice Of India’s Financial Sector With ABSL Crisil-IBX Debt Index Fund

Indian investors have traditionally used open-ended debt fund offerings for generating stable returns while having the flexibility to withdraw. Within debt, the largest segment by AUM is ‘under a year to maturity,’ with these funds collectively holding over Rs 8 lakh crore in AUM as of December 2024 [Source: AMFI]. Meeting this strong demand, there is a healthy supply of instruments from top-rated issuers, which creates a balanced ecosystem catering to a range of differentiated offerings.

A pioneering new scheme has entered this category with the launch of ‘ABSL CRISIL-IBX Financial Services 3 to 6 Months Debt Index Fund,’ which has the potential to generate category-leading returns while maintaining AAA credit quality.

What are the key features in terms of security selection?

The scheme balances both credit and duration risk while focusing on the financial services sector. The ratings in the sector have shown stability with healthy growth in credit demand and good return on assets as NPA figures are lower than the long-term average.

• Investment Universe: The fund invests in issuers having a long-term rating of AAA within the financial services sector. The securities include Commercial Papers (CP), Certificate of Deposits (CD) and bonds issued by financial institutions.

• Duration Play: Focusing on securities with sub-6-months maturity ensures low-duration exposure, which helps mitigate interest rate risk. As the securities extend beyond the 3-month horizon, there is a term premium compared to classic liquid and overnight funds.

• Liquidity Focus: Issuers with a minimum Rs 1,500 crore outstanding and securities with a minimum outstanding amount of over Rs 100 crore are considered eligible, with up to 20 issuers ranked and selected based on liquidity.

Salient Features of the ABSL CRISIL-IBX Financial Services 3 to 6 Months Debt Index

• Roll-Down Strategy with a Twist: As the scheme name suggests, unlike Target Maturity Funds, the scheme runs in perpetuity with quarterly rebalancing. On rebalancing, fresh securities with under 6 months to maturity are chosen, and old securities with under 3 months to maturity are sold. This offers an opportunity to monetise the kink in the yield curve driven by the structural demand for 3-month securities.

• Rating Criteria: The index has a clear approach to excluding any securities where the issuer’s rating falls below AAA within the next 5 working days.

• Diversification: On rebalancing, the securities are targeted to have equal weights, and the index caps exposure to issuers at 15% and group companies at 25% to limit concentration risk.

Why Invest in ABSL CRISIL-IBX Financial Services 3 to 6 Months Debt Index Fund?

• Transparent Management: The scheme will follow passive fund guidelines and track the benchmark, subject to tracking errors. The investments will adhere to the risk profile of the index, which allows transparency in evaluating security selection logic, performance and portfolio disclosures.

• Seamless: This open-ended scheme is not subject to entry or exit load and comes with no minimum holding period.

• First-of-its-Kind Fund: This fund is India’s first debt passive scheme dedicated exclusively to securities within the financial services sector – Public and Private sector banks, NBFCs, Housing Finance companies and financial institutions. With focused sectoral exposure, the yield is higher relative to funds with G-Sec blends and other traditional saving instruments.

Disclaimer: Mutual Fund Investments are subject to market risks, read all scheme documents carefully. This article provides general information and should not be considered financial advice. Consulting with a qualified professional is recommended to assess your individual circumstances and make appropriate financial decisions.

Disclaimer: This content is produced by Shyam Sekhar of Ithought and is not authored by the Outlook Money editorial team.