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Debt mutual funds gave 10% returns in 2020. ICICI Pru AMC tells what to expect in future

Barring the credit risk category of funds, which came under pressure due to unfortunate credit events, categories such as corporate bond funds, gilt funds and medium to long duration funds delivered returns to the tune of 10% and in some cases even higher.  Photo: iStockPremium
Barring the credit risk category of funds, which came under pressure due to unfortunate credit events, categories such as corporate bond funds, gilt funds and medium to long duration funds delivered returns to the tune of 10% and in some cases even higher. Photo: iStock

Some of the best performing short duration funds have delivered around 9%, thanks to the persistent softening of interest rates.

The last three years have been interesting times for the debt mutual fund schemes in general. Barring the credit risk category of funds, which came under pressure due to unfortunate credit events, categories such as corporate bond funds, gilt funds and medium to long duration funds delivered returns to the tune of 10% and in some cases even higher. Some of the best performing short duration funds have delivered around 9%, thanks to the persistent softening of interest rates. Should investors expect similar returns from debt funds going ahead?

Given that debt returns are closely interlinked with the interest rate movement, when asked is there room for more rate cuts, Rahul Goswami, CIO – Fixed Income, ICICI Prudential Mutual Fund states, “We believe the down cycle on interest rates seems to be behind us. The next phase of rate cycle could most likely be a pause or consolidation, till the time the economy recovers, leading the RBI to change its stance."Because of this, the fund house believes the effective return of products such as liquid, money market fund does not look very encouraging.

ICICI Prudential AMC has seen no defaults, nor has there been any delay in interest payments in any of its debt schemes. None of its schemes had any exposure to issuers which have been under major stress over the past two years, says ICICI Prudential Mutual Fund.

According to ICICI Prudential, such an achievement has been possible on account of the Safety Liquidity and Returns (SLR) policy. SLR has remained the guiding philosophy for all the fixed income funds with utmost importance given to delivering risk adjusted returns to investors. As a result of this approach, the fund house has always refrained from chasing yields. (AUM data as of November 30, 2020).

Even at a time when most of the credit risk funds were under scanner for having exposure to some of the debt papers which went bad, ICICI Prudential’s credit risk scheme was immune to such negative developments, says the AMC.

Accrual strategy to be more rewarding

One of the largest fixed income managers in India with total AUM of Rs. 2.2 lakh crore across various fixed income, ICICI Prudential is positive on accrual strategy as it is likely to be more rewarding compared to capital appreciation strategy. This is because the spread assets (non-AAA Corporate Bond space) provide better carry and margin of safety relative to AAA Corporate bond and money market instruments. The Debt Valuation Index as depicted in their factsheet shows that 2-5 Years segment is expected to provide good risk-adjusted returns. Hence, the fund house is positive on short to medium duration funds.

Here are the returns generated by the AMC's debt schemes across time period.

Scheme name, 1-Year return(%), 2-Year return(%), 3-Year return(%), 5-Year return(%),

ICICI Prudential Gilt Fund, 13.07, 12.27, 9.59, 9.81

ICICI Prudential All Seasons Bond Fund, 12.11, 11.46, 9.17, 9.86

ICICI Prudential Long Term Bond Fund, 11.33, 12.50, 9.78, 9.81

ICICI Prudential Bond Fund, 11.23, 11.67,8.79, 8.64

ICICI Prudential Medium Term Bond Fund, 10.50, 9.98, 8.05, 8.22

ICICI Prudential Short Term Fund, 10.47, 10.37, 8.49, 8.61

ICICI Prudential Corporate Bond Fund, 10.39, 10.36, 8.75, 8.57

ICICI Prudential Credit Risk Fund 9.62, 9.75, 8.48, 8.41

ICICI Prudential Banking & PSU Debt 9.37, 9.88, 8.14, 8.64

ICICI Prudential Floating Interest Fund 9.13, 8.95, 7.96, 7.97

ICICI Prudential Savings Fund, 8.38, 8.75, 8.10, 8.15




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