Axis Mutual Fund’s new fund offering, Axis Ultra Short Term Fund, has opened for subscription on August 27 and is slated for closure on September 4. This open-ended ultra-short term debt scheme, which will invest in instruments with Macaulay duration between 3 months and 6 months, is for those seeking regular income over the short term. It will invest with an intention to minimise risks associated with fluctuating markets. Read on to know more details about the fund, and RupeeIQ’s take on the product at the end.
Fixed income backdrop – The RBI has already announced two rate hikes. More interest rate increases will be dependent on inflation, oil, currency and global economy triggers. Some also believe the central bank may go for a pause in the next policy meeting.
Axis Ultra Short Term Fund positioning – Ultra short-term funds fall between the ‘liquid’ products and ‘low duration’ products. They have a portfolio duration of 3 to 6 months.
Fund portfolio aspirations – The Axis Ultra Short Term Fund targets a portfolio duration of 4-5 months. In terms of portfolio investment horizon, the fund aims for a minimum of 3-6 months.
Quality of portfolio constituents is also important. In this front, the scheme wants to have typically 70% of money in A1+/AAA securities, with the balance 30% in non-AAA. Portfolio mix wise the scheme wants to have primarily A1+ with exposures to AA assets targeting around 100-150 bps spread over CDs (certificate of deposits).
Fund benefits – There are three main advantages of the fund. Firstly, the fund may give you better carry. This is because the elevated short-term spreads offer historically higher yields in the front end of the curve. The fund aims for a low duration with low volatility and relatively higher carry over a 3-6 month period
Two, the fund may achieve results with significantly lower risk. Though it is aiming for higher yields, it can do so with lower risk, generating superior risk-adjusted returns compared to traditional alternative options.
Thirdly, the Axis Ultra Short Term Fund can be an efficient cash management vehicle. This is because its current investment strategy will not lead to any major impact from interest rate changes.
The fund manager, load & benchmark – Aditya Pagaria will manage the fund. There is no exit load. The fund will be benchmarked against the CRISIL Ultra Short Term Debt Index.
RupeeIQ take – We think Axis Ultra Short Term Fund, falling in the ultra-short duration fund category, is suitable for investors who want to park money for short term say 3-6 months. It has the potential to provide an efficient way of parking money and then transfer the same to equity funds via STPs. Axis MF has built a reputation in fixed income funds. The shift in the yield curve offering attractive spreads gives the fund’s strategy a fillip.
Consult your financial advisor to understand the suitability of adding this fund to your MF portfolio.