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Model based debt fund crosses Rs.1000 cr AuM

Raghav Iyengar, EVP & Head - Institutional and Retail Business, ICICI Prudential AMC

25th August 2016

In a nutshell

ICICI Prudential Long Term Plan is not just another dynamic bond fund - it's uniqueness comes from the fact that it's strategy is governed by a model called the Current Account model. Models instill a process driven disciplined strategy, which this fund has benefited from, judging by its consistent performance. Last month, the fund crossed the 1000 cr AuM milestone (as of July 2016, its AuM stands at Rs. 1011.49 crores) - which is significant not just for the scheme, but as a validation of a differentiated and disciplined strategy of managing dynamic bond funds.

WF: Can you please take us through the Current Account model, which seems to drive portfolio strategy in your Long Term Plan?

Raghav: ICICI Prudential Long Term Plan (LTP) works on in-house model of Current Account Deficit (CAD) index along with a few other factors, to take duration call. The model compares the CAD and the market levels to give an idea what kind of duration the fund should run. The emphasis on CAD is because it has a strong correlation with interest rates. Between 2013 and the last financial year, CAD has improved from 4.5% to 1.1%. Correspondingly, this period has been marked with falling interest rates. So, this co-relation clearly works.


WF: Have there been occasions in recent years when the inverse relationship between CAD and interest rates did not actually pan out?

Raghav: There may be instances of extreme volatility in the market for shorter periods but when we look at medium term, this relationship holds true. Therefore, we ask our clients to invest in this fund with a medium term investment horizon.

WF: Given your recent stance in reducing duration in the portfolio, and many experts' opinions suggesting that the best of the bond rally is now behind us, what is the investment argument in favour of a dynamic bond fund like your Long Term Plan?

Raghav: LTP aims at a total return strategy which is achieved by the accrual income earned by corporate securities, certificate of deposits and commercial papers. At the same time, capital appreciation can be expected from fall in Government bond yields.

The model currently is suggesting that the markets are not as cheap as it was six months earlier and therefore the fund has reduced its duration. However, going forward if economic variables may improve, there can be further rally in bonds, going ahead. On the other hand, if the model suggests further reduction in duration, then the fund can earn a carry through by investing in more carry instruments than duration.


WF: What is the outlook for LTP from a three year perspective?

Raghav: A conservative investor can opt for accrual funds and moderate risk investor can go for LTP which will give the benefit of both duration and carry over the next three years.


WF: How has the investor experience been in LTP?

Raghav: The investors who have invested in LTP have made substantial gains over traditional investment avenue as represented below



Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

The information contained in this communication is only for the reading/understanding of the registered Advisors/Distributors. All data/information used in the preparation of this communication is specific to a time and may or may not be relevant in future post issuance of this communication. ICICI Prudential Asset Management Company Limited (the AMC) takes no responsibility of updating any data/information in this communication from time to time. The AMC (including its affiliates), ICICI Prudential Mutual Fund (the Fund), ICICI Prudential Trust Limited (the Trust) and any of its officers, directors, personnel and employees, shall not liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this communication in any manner.

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