Aditya Birla Sun Life AMC Limited, a subsidiary of Aditya Birla Capital Limited and investment manager for Aditya Birla Sun Life Mutual Fund, has launched 2 new fund offers, Aditya Birla Sun Life US Treasury 1-3 Year Bond ETFs Fund of Funds and Aditya Birla Sun Life US Treasury 3-10 Year Bond ETFs Fund of Funds.
Read More: Forex Update: India’s Foreign Exchange Reserves Jump by $1.15 Billion to $585.9 Billion
These open-ended funds of funds invest in units of ETFs focusing on US Treasury Bonds with maturities between 1-3 years and 3-10 years, respectively. The 2 New Fund Offers (NFO) are open for subscription and will close on October 30, 2023.
The FED funds rate is at a multi-decade high, and the potential for rate cuts in 2024 has created an attractive investment opportunity in US government-grade debt. The difference between India and US sovereign rates at a decadal low also provides a great opportunity to invest in US treasuries.
Aditya Birla Sun Life US Treasury 1-3 Year Bond ETFs Fund of Funds is suitable for investors with shorter investment horizons and who are relatively risk averse. The benefits include higher absolute yield, lower volatility & duration risk and an opportunity to earn capital gains.
Aditya Birla Sun Life US Treasury 3-10 Year Bond ETFs Fund of Funds is suitable for investors with long-term investment horizons and with a higher risk profile. The benefits include locking in higher yield for the long term, adding duration to the portfolio and an opportunity to earn capital gains.
How these funds work: ABSL US Treasury Bond FOF is a Fund of Fund that will invest in overseas ETFs managed by global asset managers like BlackRock Asset Management etc.
The ABSL US Treasury Bond FOF will collect funds in the fund account in India and invest through the institutional limit of 1BN US Dollar limit dedicated to overseas ETFs. The fund has 2 plans available – one focusing on the shorter end of the US Treasury Yield Curve, between the 1-3 Years maturities and the other focusing on the intermediate end of 3-10 years maturity.
A Fund of Fund is considered a non-equity scheme and hence will be applied to debt taxation. As per current debt taxation, any gains, whether long-term or short-term, will be subject to tax as per individual slab rate.
Should you take a bet? Over the last 15 years, the INR value has mostly depreciated against the USD. Therefore, keeping exposure in USD can offer a hedge against a depreciating INR. US Treasuries, backed by the US government, offer stability, high yields, and risk diversification for Indian investors. Entering the US Treasury market is suggested via Fund of Fund, which is more beneficial to traditional investing schemes in the US market due to the non-imposition of Tax Collected at Source (TCS) and no limit on the value.
Read More: HDFC Bank Vs PNB Vs SBI: Check Detailed FD Interest Rate Comparison
However, investors must understand that the bond and stock markets are currently focused on potential changes by the US Federal Reserve as inflation levels decrease but remain above target. Investors might exercise caution in the face of prolonged higher rates, which could impact the economy’s progress during the second half of 2023. Nevertheless, further developments are yet to be seen.
