Mutual Funds

Should investors go for Axis CPSE Plus SDL 2025 70:30 Debt Index Fund NFO

Maulik Madhu | Updated on: Jan 11, 2022
Businessman or investor using calculator to calculate growth income revenue  with step of coin and graph info, business successful financial from investment concept

Businessman or investor using calculator to calculate growth income revenue with step of coin and graph info, business successful financial from investment concept

It is suitable for those willing to take moderate risk and with a 3-year investment horizon

BL Research Bureau

Axis MF launched its CPSE Plus SDL 2025 70:30 Debt Index Fund, a target maturity fund (TMF) on January 10. The NFO (new fund offer) will remain open until January 20, 2022.

Scheme details

The scheme will track the CRISIL IBX 70:30 CPSE Plus SDL - April 2025 and matures on April 30, 2025 - that is, around 3 years from now. If you remain invested until maturity, your indicative return will be 5.75 – 5.95 per cent (yield to maturity), depending on the yields prevailing at the time of cash deployment, minus the expense ratio. Other existing TMFs with similar portfolios charge an expense of 0.13 – 0.16 per cent.

The CRISIL IBX 70:30 CPSE Plus SDL - April 2025 index is a 70:30 mix of AAA-rated CPSE bonds and SDLs (state development loans) maturing within six month of April 30, 2025. The selected CPSE bonds and SDLs will be assigned 70 per cent and 30 per cent weight, respectively, at the time of inception.

Axis MF’s latest TMF is similar in composition to its earlier launched, Axis AAA Bond Plus SDL ETF – 2026 which matures in 2026 and has 50:50 exposure to AAA-rated corporate bonds and SDLs. The scheme has a yield to maturity of 6.12 per cent.

Suitability

TMFs are suitable for moderate-risk investors who want some degree of return predictability and have an investment goal that matches the maturity of the scheme. Those with a 3-year investment horizon, can consider investing a portion of their surplus in the Axis MF CPSE Plus SDL 2025 70:30 Debt Index Fund. While you can exit the scheme before its maturity, this can expose you to possible capital loss (fall in bond prices as interest rates rise) with the expected upturn in the rate cycle. Staying invested till maturity - when the bonds held in the scheme portfolio mature and are redeemed by their issuers - can protect you from this adverse impact.

These funds can be especially attractive on a post-tax return basis for those in the higher tax brackets. If you redeem your investment in a TMF, which is a debt fund, after three years, your return (capital gains) gets taxed at 20 per cent with indexation benefit. If you invest in the Axis MF CPSE Plus SDL 2025 70:30 Debt Index Fund before March 31, 2022 (FY22) and redeem after April 1, 2025 (FY26), then you can apply the indexation benefit for four financial years. This can reduce your tax liability significantly.

Interest income on fixed deposits, on the other hand, is taxed at your income tax slab rate making them unattractive on a post-tax basis for high tax individuals.

Published on January 11, 2022

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