Mirae Asset Ultra Short Duration Fund NFO: Bias towards highly rated instruments

A debt fund suitable for investors looking at making investments for a short period of 3 to 6 months; new fund offer period closes on October 6, 2020

Staff Writer Sep 29, 2020

Ultra short term bond fundsMirae Asset Investment Managers India has launched ‘Mirae Asset Ultra Short Duration Fund’, a debt fund suitable for investors looking at making investments for a short period of three to six months. The NFO opened for subscription on September 28, 2020 and will close on 6th October 2020. In this article, we will delve into the offering details. Read on.

What are ultra short duration funds?

After overnight debt funds and liquid debt funds, ultra short duration funds are one of the lowest risk categories of schemes to invest in. In an ultra short duration fund, the money taken from investors is usually invested in debt papers of companies for a period of three to six months. Ultra short duration funds are low-risk funds owing to their low lending duration.

Now you may ask wasn’t Franklin Ultra Short Bond Fund in the same category?

Yes and No. Technically, Franklin’s Ultra-Short Term Bond is indeed part of the ultra short duration fund category. But the fund had invested in illiquid debt papers. After the Franklin debacle, it is unlikely that other fund-houses like Mirae will repeat the same mistake. Mirae Asset Ultra Short Duration Fund has made it clear that it will predominantly make investments in highly rated instruments (AAA/A+ rated papers) and aim for good portfolio liquidity. Do note Franklin’s Ultra-Short Term Bond always kept lower than category average when it came to AAA exposure.

Mirae Ultra Short Term Bond Fund

What is the strategy of Mirae Asset Ultra Short Duration Fund?

The new fund will aim to generate returns through investment in debt and money market instruments such that the Macaulay duration of the portfolio is between 3-6 months. The open ended debt scheme will invest up to 100% of its assets in debt and money and market instruments carrying a low to medium amount of risk with a focus of investments in highly rated instruments (AAA/A1+ rated papers). The fund will be managed by Mahendra Jajoo (CIO – Debt). The scheme will be benchmarked against the Nifty Ultra Short Duration Debt Index. The fund has no exit load, providing flexibility to investors. The fund’s focus will be to target lower volatility and attain low interest rate risk. The fund plans to invest primarily in short maturity papers along with tactical exposure to Government Securities (G-Secs).

“The decision to launch Mirae Asset Ultra Short Duration Fund is in line with our objective to complete the debt product offering over a period of time and providing more investment options for our investors. The fund will follow our stringent debt investment process and invest predominantly in highly rated instruments with an aim to offer better risk adjusted returns to investors who are seeking opportunities for a short period ranging from 3 to 6 months,” said Swarup Mohanty, CEO, Mirae Asset Investment Managers (India) Pvt. Ltd.

The minimum initial investment in the scheme will be Rs 5,000 and multiples of Re 1 thereafter. Units will be allotted in whole figures and the balance amount will be refunded. The scheme will re-open for continuous sale and repurchase from 8th October 2020.

RupeeIQ take

Ultra short duration funds have given between 2 to 6% in the last 6 month period. There is a wide variance in returns. Average maturity stretched to more than 10 months in some funds. Yield to maturity ranges from 3%, to as high as 9% in one case. All this data shows that it entirely depends on how the fund manager constructs the ultra short duration portfolio. Wholesale business based NBFCs should be avoided, generally speaking.

Anyone buying an ultra short duration fund today has a primary requirement — high level of liquidity. Also, they would want to minimize credit risks. We hope that Mirae Asset Ultra Short Duration Fund will not take higher credit risk.

Investors are advised to avoid parking emergency funds in ultra short funds. Use liquid funds or savings bank accounts for that purpose. Ultra short funds are ideal for short term goal-based saving.

Staff Writer

This article is written by RupeeIQ editorial staff.

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Mohammed Haseeb