Wednesday, November 28, 2012

Axis Constant Maturity 10 Year Fund

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Axis Constant Maturity 10 Year Fund This fund is suitable for investors seeking a high quality liquid vehicle to invest in government securities

WHAT IS IT: Axis Constant Maturity 10 Year Fund is an open-ended gilt scheme offered by Axis Mutual Fund.

The fund aims to generate returns similar to that of 10year government bonds. It is like an exchange-traded fund (ETF) on fixed income products with exposure to 10-year maturity government papers.However, the units of the scheme are not listed on BSE and NSE and the same cannot be traded on the stock exchange. The new fund offer opened on January 10 and closed on January 19. The units were allotted on January 23.

ASSET ALLOCATION: As on October 31, the scheme held 85.84 per cent of assets in the form of government securities, 57.85 per cent in government bonds of 8.15 per cent coupon rate and another 28 per cent in government bond of 8.33 per cent coupon rate, and remaining 14.15 per cent in cash and short-term money market instruments (CBLO and others).

WHY INVEST IN A BOND FUND: Bonds help to diversify risk and protect against equity market shocks. During bear markets, bonds have done well historically. Also, the fund provides exposure to long duration government bond market. Government securities are institutional in nature and trades in Rs 5 crore lots.

Retail lots of government bonds are illiquid and is subject to larger trading costs, whereas, for Axis Constant Maturity 10 Year Fund investors, there is daily liquidity irrespective of amount.

OPTIONS AND CHARGES: There is no entry and exit load charged under the scheme. It has both, growth and dividend option. Dividend option provides quarterly and half-yearly payout and reinvestment facility.

BENCHMARK CONUNDRUM: The scheme's performance will be benchmarked against the Crisil 10-Year Gilt Index.

The fund has been trailing in performance on one month (0.28 per cent vs 0.47 per cent) and three month (1.53 per cent vs 2.12 per cent) basis to the fund category. It also trails three-month return of Crisil 10 Year Gilt Index at 1.66 per cent. The fund has given a return of 4.56 per cent since launch in January, which again trails the fund category that has given a one-year return of 12.29 per cent and Crisil 10-Year Gilt Index one-year return of 11.82 per cent. This fund is suitable for investors seeking a high quality liquid vehicle to invest in government securities. Likely drop in interest rate in the near future augurs well for investors in this scheme. By investing predominantly in government securities, the scheme has a high degree of credit quality and liquidity, which ensures less risk in investment in terms of capital loss and future cash requirements.

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