Mutual Funds

ICICI Prudential All Seasons Bond Fund: Consistency across rate cycles

Radhika Merwin | Updated on January 12, 2019 Published on January 12, 2019

Investors with a two- to three-year horizon can invest in the dynamic bond fund

After a rocky 2018, bond markets are in for a bumpy ride in 2019 as well.

On the one hand, a lower inflation reading over the past several months, the sudden change of guard at the RBI re-kindling hopes of a softer monetary policy, and increasing pace of open-market operations (buying of government bonds) are positives for the bond market.

On the other hand, the larger-than-expected market borrowings announced by State governments for the January-March 2019 quarter, the Centre’s fiscal position, and possible risks to inflation are headwinds in the coming months.

Hence, if you have a moderate risk appetite and want a piece of the action when bond prices rally, dynamic bond funds that invest across duration is a good bet.

Dynamic bond funds essentially ride on rate movements, and the fund manager alters the duration of the fund portfolio depending on the expectation of rate movements.

ICICI Prudential All Seasons Bond Fund (earlier ICICI Prudential Long Term Plan) is a dynamic bond fund that has consistently delivered across rate cycles.

For instance, while the fund made handsome returns of 16-19 per cent in the good years of 2014 and 2016, it managed to deliver 5 per cent returns in 2017, a sombre year for long-term gilt funds that delivered just 2-3 per cent returns. Actively managing duration has helped the fund cap losses in volatile markets, while cashing in on the rallies in good times.

The fund has delivered annual returns of 9-10 per cent over longer three-, five- and 10-year periods, beating category performance by 2-2.5 percentage points. Investors with a two- to three-year horizon can invest in the fund.

Tweaking duration

Debt fund NAVs rise or fall along with the underlying bond prices. Interest-rate movements in the economy impact bond prices.

If the interest rates move up, bond prices fall, and vice versa.

As longer-duration bonds are more sensitive to interest rates, the fund manager increases duration, to cash in on the rally in bonds in a falling-rate scenario.

In a rising-rate environment, the fund manager pares the duration of the fund, to cap losses.

ICICI Prudential All Seasons Bond, even in its earlier avatar (before undergoing the name change under SEBI’s new categorisation norms) had been taking active duration calls by investing predominantly in G-Secs.

The fund’s average maturity has been varying from four years to as high as 20 years in the past three years. Such active management of duration has helped the fund deliver top-notch returns within the category.

After bringing down its average maturity to about 1.5-2 years in July-October 2018, the fund has increased it slightly to about 3.5 years in the past two months, which could help it participate in the interim bond rally.

Still, the relatively lower maturity should help cap losses if bond markets turn volatile.


In the past, the fund has invested a chunk of its assets in G-Secs and high-rated (AA+ and above) bonds. As of December 2018, the fund has invested 22.8 per cent in G-Secs and 25.7 per cent in AAA rated debt instruments.

The scheme carries an average maturity of 3.5 years and a yield-to-maturity of 8.6 per cent.

Published on January 12, 2019
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