Widely read:
Aditya Birla Sun Life Mutual Fund is introducing two fund of funds (FoF) designed to invest in US treasury bond ETFs (or exchange-traded funds) . They are:
- Aditya Birla Sun Life US Treasury 1-3 Year Bond ETFs FoF
- Aditya Birla Sun Life US Treasury 3-10 Year Bond ETFs FoF
The subscription for these new fund offerings (NFO) is open until October 30, 2023.
About the FoFs
NFO snapshot
| NFO period | October 16, 2023 to October 30, 2023 |
| Benchmark | For ABSL US Treasury 1-3 Year Bond ETFs FoFs: Bloomberg US Treasury 1-3 Year Index. For ABSL US Treasury 3-10 Year Bond ETFs FoFs: Bloomberg US Treasury 3-10 Year Index |
| Fund manager | Dhaval Joshi |
| Exit load | 0.05% (of applicable NAV) if units are redeemed / switched-out on or before 90 days from the date of allotment. Nil thereafter. |
| Tax treatment | Taxed like domestic debt funds. Entire gain is added to the investors' income and taxed according to the applicable slab rate. No tax is to be paid as long as you continue to hold the units. |
The two schemes will invest in ETFs with underlying securities as the US Treasury bonds of different maturities. US Treasury bonds are government bonds issued by the US Department of the Treasury. These are considered among the safest and least volatile investments, with higher ratings than Indian government bonds.
Indicative list of the underlying ETFs:
| Fund of funds | Underlying ETFs |
|---|---|
| Aditya Birla Sun Life US Treasury 1-3 Year Bond ETFs Fund of Funds |
|
| Aditya Birla Sun Life US Treasury 3-10 Year Bond ETFs Fund of Funds |
|
| Source: Scheme information document (SID) of respective schemes | |
Points to note
-
Diversification:
Investors looking to diversify their fixed-income portfolio geographically can consider these schemes.
-
US Treasury yields:
The NFOs coincide with US Treasury yields reaching multi-decade peaks, reminiscent of 2007 levels. This presents an opportunity to lock in higher yields. With speculations about potential US federal rate cuts as inflation decreases, investors may also anticipate capital gains, as bond prices are inversely related to interest rates. While US Treasury yields may appear lower when compared to Indian government yields, the gap between one-year bond yields has reduced, making them more appealing than before.
- Hedge against rupee depreciation: A depreciation of the rupee against the US dollar will enhance returns, while an appreciation will reduce returns. Over the last 10 years, the rupee has depreciated against the US greenback in nine of them, with a 3.97 per cent CAGR.
Other ways to invest in US Treasury bonds
The Bandhan US Treasury Bond 0-1 Year FoF , launched on March 28, 2023, was the first international debt fund offering access to US Treasury bonds.
Since its launch, it has delivered returns of 3.85 per cent in the last six months.
Prior to this, the only route for Indian investors to invest in US Treasury bonds was the liberalised remittance scheme (LRS) .
About the fund manager
Dhaval Joshi serves as the fund manager of the FoFs. He joined Aditya Birla Sun Life Mutual Fund in September 2022 and had five years of experience with Sundaram Mutual Fund before that.
However, it is worth noting that the fund manager's role in an FoF is not as pivotal, as it is a passive fund.
Should you invest?
Only those investors seeking geographic diversification for their fixed-income portfolio can consider these FoFs.
But, it's essential to remember that these are NFOs, and it may be prudent to monitor their performance for some time before jumping in. Not just that, the entire US Treasury FoF segment is just six months old, so being watchful now would be the best option.
Also read: Three questions to ask before investing in NFOs
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