ICICI Prudential Banking & PSU Debt Fund: A good mix of safety and yield

Launched in January 2010, the ICICI Prudential Banking & PSU Debt Fund has consistently ranked within the top 30th percentile of the banking and public sector undertaking (PSU) fund category in the CRISIL Mutual Fund Ranking (CMFR) for the past three quarters ending June 2024.

As of June 2024, the fund’s assets under management stood at Rs 9,018 crore, up from Rs 8,127 crore in June 2023.

Rohit Lakhotia and Rohan Maru have managed the fund since June 2023 and January 2024, respectively.

 

The fund aims to generate income while maintaining an optimal balance of yield, safety, and liquidity through an actively managed portfolio, predominantly invested in debt instruments issued by banks, PSUs, public financial institutions, and municipal bonds.

Consistent performance

The fund outperformed its benchmark over the past six-month, one-year, two-year, three-year, and five-year trailing periods. It also outperformed its peers (ranked under the banking and PSU fund category in the June 2024 CMFR) over the past six-month, one-year, two-year, three-year, five-year, seven-year, and 10-year trailing periods.

To illustrate, an investment of Rs 10,000 made in the fund on August 1, 2019 (over the past five years) would have grown to Rs 13,800 by August 8, 2024, yielding an annualised return of 6.62 per cent. In comparison, the same investment in the category would have increased to Rs 13,568 (6.26 per cent), and in the benchmark, to Rs 13,754 (6.55 per cent).

Duration management

Over the past three years, the fund’s modified duration averaged 2.53 years, compared to its peers’ average of 2.27 years. In June 2024, it increased to 2.93 years from 1.75 years in June 2023, aiming to benefit from higher yields.

Portfolio analysis

In the past three years, the fund has maintained a predominant allocation to non-convertible debentures (NCDs) and bonds of financial institutions.

The exposure to NCDs and bonds averaged 52.26 per cent, while the allocation to money market securities (certificates of deposit and commercial papers) averaged 16.7 per cent during this period.

Additionally, the fund maintained a conservative credit profile over the past three years, with a predominant allocation to the highest-rated securities (AAA and A1+) and government securities (G-secs).

The exposure to AAA and A1+ rated securities averaged 61.28 per cent during this period, slightly lower than the peer average of 71.92 per cent.

The allocation to AA/AA+/AA rated securities averaged 7.7 per cent for the fund, compared to its peers’ 5.61 per cent. However, the allocation to G-secs averaged 27.04 per cent, higher than its peers’ 15.12 per cent.