Amidst all the risks that transpired in the debt space, in the last 6 months, Axis Banking & PSU Debt was among the few funds that remained steady and unhurt by the credit spook. Given its mandate to invest in bonds/deposits of banks and PSUs, the fund has largely kept itself away from credit risk. On the duration front, unlike many banking & PSU funds that dynamically change the portfolio maturity, this fund has seldom taken very long calls. As a result, it gains from rate decline scenarios adequately and does not get too hurt during rate hikes. This characteristic makes this fund a superior play in the entire short duration space.
Suitability
Investors wanting to use a debt fund as part of their asset allocation can invest in Axis Banking & PSU Debt. This fund is not a chart-topper over 3-year periods. But in a year like 2018, when equity and debt faced much pain, it can lend stability. You can use this fund for the following purpose:
- Act as a hedge for an equity-heavy portfolio.
- Hold for 2-3 years and use it as part of an income generating debt portfolio (using a systematic withdrawal plan) along with other ultra-short/short duration funds.
The fund requires at least a 2-year holding and is suitable for any long-term portfolio as well.
Performance
Axis Banking & PSU Debt is not a chart topper. But when compared with its own peers and the entire short duration category, it stands out on the following: One, among funds with low credit risk in the short duration space, it has the highest risk-adjusted return as measured by sharpe (on a rolling 1-year return basis for 3 years). Franklin India Short Term Income Plan and Baroda Short Term Bond are the only other funds with higher sharpe, but that comes from taking significantly higher risk.
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Returns as of April 10, 2019
Two, the fund has delivered 1-month negative returns (in the past 5 years) in just 3% of the occasions. Among the better rated short duration funds, this is next only to HDFC Short Term Debt. Three, the fund’s size has grown 3-fold in the past 6 months at a time when funds are facing redemption pressure. Low credit risk, like other banking & PSU funds, but significantly higher risk-adjusted return appears to have increased investor interest in the fund.
Portfolio
Axis Banking & PSU Debt’s portfolio looks almost uninteresting, like a large-cap equity fund’s portfolio. The all-familiar names in the PSU space such as NABARD, SIDBI, NHAI, PFC, and SBI find a place in the portfolio. They are AAA papers and carry liquidity. While the fund has steadily held bonds/debentures of banks and public sector companies for a good while now, there have been times in the past when it capitalized on high-interest rates by investing in short-term certificates of deposits of banks as well.
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Axis Banking & PSU Debt increased its average maturity early on, in June 2018, and suffered very short periods of 1-month negative returns as a result of an early call to up maturity. However, now, it’s average maturity of around 3 years gives it a marked advantage over other short duration funds, as the rate decline scenario can provide capital appreciation opportunities in the bonds it holds. Its current 1-year return of 8.6% is already higher than the 7.1% average in the banking & PSU category and the 6.5% return in the short duration space.
Unlike many peers in the banking & PSU space, the fund does not significantly up its average maturity. As a result, it has been less volatile than peers.
The fund is managed by Aditya Pagaria and had Rs 4581 crore of assets as of March 2019.