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ICICI Prudential Regular Savings (formerly known as ICICI Prudential MIP 25), which falls under the conservative hybrid fund category, is suitable for investors with a medium-risk profile wanting some equity exposure.
The funds under the conservative hybrid category invest primarily in debt securities and money market instruments with moderate exposure to equities. As per SEBI’s categorisation mandate, these funds are allowed to invest 10-25 per cent of their total assets in equity and the rest in debt instruments.
The higher allocation to debt helps steady the growth of the principal with minimal risk, while the marginal equity component helps spice up returns.
SWP
Investors nearing their retirement stage or retirees wanting a regular stream of income can invest a part of their retirement corpus in ICICI Prudential Regular Savings and opt for the Systematic Withdrawal Plan (SWP) route. But remember that investments in debt funds are not completely risk-free as these funds invest in market-linked debt instruments. Hence, they can suffer capital loss. So, park only a portion of your retirement corpus in debt funds.
SWP allows you to withdraw from your mutual fund scheme every month, or periodically, on a fixed date. With SWP, you can customise the cash flow as per your requirement.
Data sourced from NAV India show that ICICI Prudential Regular Savings scores over its peers on generating higher returns in terms of SWP performance.
For SWP pay-outs in three-, five- and seven-year time-frames, the scheme generated pre-tax annualised yields of 11.6, 12.5 and 10.8 per cent, respectively, while the average of the top-quartile funds in the category generated yields of 10, 11.5 and 10 per cent during the same periods.
We calculated the SWP return (internal rate of return) with an initial investment amount of ₹1 lakh and a monthly pay-out of ₹1,000.
Since the fund belongs to the non-equity category as far as taxation is concerned, starting an SWP after three years from the date of investment will help you claim indexation benefit (currently taxed at 20 per cent on gain after indexation).
Portfolio composition
The fund used to actively shift its equity allocation between 18 per cent and 25 per cent depending on market phases.
However, post re-categorisation (from May 2018), the fund has reduced its equity exposure and maintained it at 11-17 per cent.
On the equity side, the scheme follows a multi-cap approach. Given its large-cap orientation in equities, it has delivered relatively higher returns in bear phases, but registered moderate returns in bull phases.
On the debt side, the fund follows active duration strategy by investing primarily in government securities and corporate bonds.
The fund has gradually pruned exposure to government securities while increasing exposure to non-convertible debentures (NCDs).
It has added exposure to low-rated debt instruments (around 44 per cent in AA rated and below). Single bond exposure is at 5-6 per cent in a few cases, which increases the credit risk of the debt portfolio.
Over the past three years, the average maturity of the portfolio has come down to two years from 9-10 years in the past.
The scheme has a high yield to maturity (YTM) of 9.8 per cent as of January 30.
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