Fund Pick: Axis Banking & PSU Debt Fund is a potent mix of safety & returns

Launched in June 2012, the Axis Banking & PSU Debt Fund has featured in the top 30 percentile of the banking and public sector undertaking (PSU) debt fund category of CRISIL Mutual Fund Ranking (CMFR) for three consecutive quarters up to June 2022.

The fund has been managed by Aditya Pagaria since August 2016. 

Month-end assets under management of the fund grew to Rs 14,331 crore in June 2022, from Rs 6,530 crore in June 2019.

The investment objective of the scheme is to generate stable returns by investing predominantly in debt and money-market instruments issued by banks, PSUs, and public financial institutions.

The scheme endeavours to generate optimum returns with low credit risk.

Consistent performance

The fund has consistently outperformed its peers (funds ranked under the banking and PSU debt fund category in CMFR in June 2022) over the trailing periods under analysis.

A sum of Rs 10,000 invested in the fund on June 8, 2012 (inception of the regular plan of the fund) would have grown to Rs 21,665 (7.87 per cent compound annual growth rate, or CAGR) on August 18, 2022, compared with Rs 21,070 (7.58 per cent CAGR) for the peer group during the period.

Duration management

As yields of government securities (G-secs) increased during the past 12 months, the fund reduced its modified duration to reduce interest-rate risk exposure.

The fund reduced its modified duration to 0.59 year in June 2022, from 1.14 years in July 2021. The category peers reduced their modified duration to 1.65 years, from 2.31 years.

Portfolio analysis

The fund has maintained predominant allocation to non-convertible debentures (NCDs) and bonds of financial institutions in the past 12 months.

Exposure to NCDs and bonds averaged 75.56 per cent during this period.

Allocation to G-secs averaged 11.06 per cent, and exposure to cash and equivalents averaged 6.09 per cent during the period.

The fund has maintained a conservative credit profile in the past 12 months by maintaining predominant allocations to the highest-rated securities (‘AAA’ and ‘A1+’) and sovereign bonds.

The exposure to ‘AAA’- and ‘A1+’-rated securities averaged 82.83 per cent during this period.

The fund maintained a lower allocation to sovereign securities, compared with category peers.

The fund’s exposure to sovereign averaged 11.06 per cent, compared with 13.4 per cent for the category.

The fund also did not take any exposure to securities rated below ‘AAA’ during the period under analysis.