Sundaram Mutual Fund to launch fixed maturity plan

Our Markets Bureau

Mumbai, Oct 14: Sundaram Mutual Fund (MF) is all set to launch a close-ended debt fund — fixed maturity plan. The company has already filed the offer document with the Securities and Exchange Board of India (Sebi). The scheme will have a unit price of Rs 10.

The primary objective is to generate income with minimum volatility by investing in a portfolio of fixed-income securities, normally maturing in line with the time profile of the respective plan. The investment policy would be to generally ‘buy and hold’ instruments to minimise the interest rate risk. Selling of securities would mainly be done to meet redemptions before the maturity date, if any. The scheme may also resort to temporary borrowing within the limits laid down by Sebi.

The scheme is intended to allocate 65-100 per cent of its asset in debt instruments with the remaining in money market instruments.
The asset allocation is not absolute and would vary depending upon the conditions prevailing in any of the markets. The allocation to debt instruments under normal circumstances shall be maintained at least at 65 per cent of the investible funds.

The scheme will invest in a wide range of securities like, government securities (G-Secs), including treasury bills, debentures, bonds, asset backed securities, trade bills, promisory notes, pass through obligations, commercial paper and any other transferable securities issued by a corporate body whether in private or public.

The scheme will also invest in derivatives instruments like, swaps and forward rate agreements.

With regard to asset allocation decision, the scheme will consider the spread between G-Secs and corporate bonds to determine the relative weights. As the credit spread increases, the weight of corporate assets will increase and as spread declines the weightage of government bonds increases.

Thus, the allocation of weight between corporate bonds and G-Secs is also a function of relative attractiveness.