This Debt fund invests in the safest bonds, yet gives great returns

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Nippon India Banking and PSU Debt fund NBPDF : Banking and PSU debt funds can be a good option for investors looking for debt schemes with good credit quality and relatively less affected by interest rate risk. Nippon India Banking and PSU Debt Fund (NBPDF) is one such scheme. She manages her portfolio with a lower maturity profile and has the best quality papers. NBPDF is part of MC30, a curated basket of good investment plans for all types of investors. Launched in May 2015, NBPDF has delivered a compound annualized growth rate of 8% since its launch. The scheme is jointly managed by Pranay Sinha and Vivek Sharma.

According to data from ACEMF, the fund has given returns of 3.7 per cent in one year, 8.3 per cent (annual) in 3 years and 7.3 per cent (annual) in 5 years.

Normal return given in the last one year

Over the past one year, debt mutual funds (except credit risk schemes) have given moderate returns due to the RBI’s measures to boost liquidity. But inflation is rising and concerns remain about possible rate hikes ahead. Arun Kumar, Head (Research), FundsIndia, says, “Currently, we are in a phase where inflationary pressures persist across the globe. In India, the economic recovery has begun. RBI will withdraw all emergency measures. It is widely agreed that interest rates cannot remain at these levels for long. In the last six months, yields have started rising. In the next one-and-a-half years, we will see a cycle where interest rates will continue to rise.” In this transition phase, it will be difficult for debt funds to deliver good returns, Kumar said. “If you want to reduce the volatility, it is better to invest in such funds, which are of shorter duration,” he said. With lower maturity, NBPDF will be able to contain this downsight.

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Good returns given in the era of interest rate reduction

NBPDF has outperformed its peers in the interest rate fall scenario, but underperformed its category in the rate hike scenario.

As per SEBI’s mutual fund classification guidelines, banking and PSU debt funds should invest at least 80 per cent of their assets in instruments issued by banks, public sector undertakings (PSUs) and public financial institutions (PFIs).

Pranay Sinha says, “NBPDF is designed to provide investors with a good risk-reward experience with minimal risk.”

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Fund invests only in well rated instruments

During the last three years, the fund has invested only in the best rated AAA debt instruments issued by banks and PSUs. This eliminates the credit risk in his portfolio. Debt papers issued by banks, PSUs and PFIs are generally of good credit quality. It held private corporate bonds of companies with strong financials like Reliance Industries and Bajaj Housing Finance. It has not invested in any AT1 bonds. It is one of the few funds that has been averse to the credit risk that has hit the MF industry during 2018-20.

According to his portfolio as of December 2021, his highest exposure to any single corporate bond was 9 per cent. Whereas SEBI allows investment up to 20 per cent.


Usama Younus

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