Trust MF is a new mutual fund AMC that has launched Banking and PSU Debt Fund now. This New Fund Offer would open for subscription on 15th January, 2021. This is an open ended mutual fund that predominantly invests in debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds. Should you invest in TrustMF Banking and PSU Debt Fund NFO? What are the various risk factors associated with such funds? Would TrustMF would be a winner in its first mutual fund scheme?
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Issue details of TrustMF Banking and PSU Debt Fund (NFO)
This is an open-ended equity mutual fund scheme. Here are the NFO issue details.
|TrustMF Banking and PSU Debt Fund – NFO Issue Details|
|Scheme reopens for continous purchase/sale||Within 5 days from closure|
|Minimum investment (Lumpsump)||Rs 1,000|
|Minimum investment (SIP)||Rs 1,000 for 6 months|
|NAV of the fund||Rs 10 during NFO period|
|Max Total expense Ratio (TER)||2.00%|
|Benchmark||CRISIL Banking & PSU Debt Index|
|Fund Manager||Mr Anand Nevatia|
Download TrustMF Banking and PSU Debt Fund KIM
What is the investment objective of this MF scheme?
To generate reasonable returns by primarily investing in debt and money market securities that are issued by Banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds.
There is no assurance or guarantee that the investment objective of the scheme will be realized.
What is the allocation pattern in this mutual fund?
This fund investment pattern is as follows:
|Type of instruments||Min %||Max %||Risk Profile|
|Debt Securities (incl. securitised debt) & Money Market Instruments, PSUs, Public Financial Institutions and Municipal Bonds||80%||100%||Low to Medium|
|Government Securities Incl State Development Loans, Treasury Bills/Cash Management Bills), Debt Securities & Money Market Instruments issued by other entities and Units issued by REITs & InvITs||0%||20%||Medium|
|Units issued by REITs & InvITs||0%||10%||Medium to High|
Why to invest in the TrustMF Banking and PSU Debt Fund NFO?
Here are a few reasons to invest in such mutual fund schemes.
1) This fund would invest in debt instruments of scheduled commercial banks, government entities and PSU enterprises. Such funds are considered to be safer compared to corporate bond funds that invests in corporate debt instruments which are high risk.
2) This fund aims to invest in short and medium term options (2-5 years). This fund is good for short to medium term investors.
3) Since it invests in banks and PSU debt instruments, it provides high liquidity unlike corporate risk funds which invests in corporate debt papers and are high risk with liquidity issues.
4) Banking and PSU debt funds segment performed well and gave higher returns in the last few years compared to corporate bond funds, dynamic bond funds, medium to long term duration funds etc.,
Some key risk factors you should consider before you invest in such funds
One should consider some of these risk factors / negative factors before investing.
1) Such funds would have interest rate risks (interest rate increases, bond yield fall and vice versa). During raise in interest rates, the NAV of the fund would fall.
2) While investment in Government enterprises / PSU debt would have zero risk, there is credit risk in commercial bank debt instruments. If the credit ratings of such commercial banks go down, the value of the bonds invested in such banks would also go down. It would invest in scheduled commercial banks that include private sector banks, public sector banks, small finance banks, payment banks and foreign banks that has a presence in India. See what happened earlier in Yes Bank and then in Lakshmi Vilas Bank. Hence, the risk is NOT eliminated.
3) It invests in REITS and InvITs which are considered as high risk.
4) You can refer complete risk factors in NFO Scheme Information documents.
Performance of existing Banking and PSU Funds
Now, let us look at some of the top performing banking and PSU debt funds in the last 1 year to 5 years period. If you see, these funds gave 7.6% to 9.1% annualized returns in the last 5 years.
|Fund Name||Annualised Returns|
|1 Year||3 Year||5 Year|
|Edelweiss Banking and PSU Debt Fund||12.8%||10.5%||9.1%|
|Aditya Birla Sun Life Banking & PSU Debt Fund||10.8%||9.2%||9.0%|
|Kotak Banking and PSU Debt Fund Regular Plan||10.4%||9.4%||8.8%|
|Nippon India Banking & PSU Debt Fund||10.8%||9.3%||8.8%|
|HDFC Banking and PSU Debt Fund||10.4%||8.9%||8.7%|
|Axis Banking & PSU Debt Fund||9.5%||9.2%||8.6%|
|ICICI Prudential Banking & PSU Debt Fund||9.2%||8.4%||8.6%|
|DSP Banking & PSU Debt Fund||10.7%||9.1%||8.6%|
|Franklin India Banking & PSU Debt Fund||9.1%||9.1%||8.6%|
|IDFC Banking & PSU Debt Fund||10.8%||9.8%||8.6%|
|SBI Banking and PSU Fund||10.4%||9.1%||8.4%|
|L&T Banking and PSU Debt Fund||10.3%||8.7%||8.4%|
|PGIM India Banking & PSU Debt Fund||9.8%||8.8%||8.3%|
|LIC MF Banking & PSU Debt Fund||8.5%||8.5%||8.0%|
|Invesco India Banking & PSU Debt Fund||9.4%||8.7%||7.7%|
|Sundaram Banking & PSU Debt Fund||7.6%||7.9%||7.6%|
Is there any risk of investing in this fund of TrustMF as it is a new AMC?
This is the first mutual fund scheme from Trust Mutual Funds. However, TrustMF is part of Trust group, a financial services company that has a presence in investment banking and portfolio management. It works as arranger for NCDs, Bonds and commercial papers, mobilizing funds for issuers from the market. Currently it has a debt portfolio management service of over Rs 13,100 Crores. While they could be new in mutual funds, they already have a foot print in debt segment and financial markets.
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Should you invest in TrustMF Banking and PSU Debt Fund NFO?
TrustMF Banking and PSU Debt Fund invests in debt instruments of scheduled commercial banks and PSU enterprises. While investment in debt instruments of PSUs has zero risk, investing in bank debt instruments are risky. Interest rates are expected to further fall in the coming years that would increase the bond yield. In such scenario, investing in debt funds could be the best bet. These funds are better compared to corporate debt funds (which invests in corporate debt instruments that are considered as high risk). One can expect 7-10% returns from such Banking and PSU Debt funds, though not guaranteed. If you are a moderate risk taker and willing to invest for 3-5 years time frame, you can invest in such funds. If you do not want to test with new funds, you can invest in some of the consistent performing banking and PSU debt funds.
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The risk analysis are clearly narrated. As you mentioned there is a risk of debt instruments issued by private banks as we have recently seen the episode of Yes Bank.The debt instruments issued by PSU Banks are safe. It was clearly predicted that the interest rates are going to come down in future which increase bond yields.
My doubt is whether the inflation rise from present levels may give chance to RBI to to increase interest rates.
Thanks for your comments Suryaprakash. It is very difficult to predict whether RBI would increase the interest rates or reduce it. In several countries, there are negative interest rates. In some countries the interest rates are very low. In short to medium term for various reasons, interest rates might fluctuate in India. But in the long term, India also may move towards reduced interest rates.