The first American debt fund of funds in India has been introduced by Bandhan Mutual Fund, using one of JPMorgan Asset Management’s exchange traded funds as the underlying strategy.
The $2.33 billion JPMorgan Beta Builders US Treasury Bond 0-1 year Ucits ETF, a strategy that replicates the performance of US Treasury bonds, is where the Bandhan US Treasury Bond 0-1 Year Fund of Fund invests.
- Should you invest in US Treasuries for Geographical Diversification ?
- Why consider 0-1 year maturity US Treasury Investment ?
- Key factors to consider before Investment
- Who should Invest ?
US treasuries for Geographical diversification
USA has the largest economy and the most important reserve currency in the world. US Treasuries have a rating of S&P AA+ and Fitch AAA v/s India’s sovereign is rated at BBB-, therefore it is a safer asset. Apart from that, concerns about global economic development have led to an increase in risk aversion, which favors US bonds over bonds and stocks from other nations. Adding to all, the increase in yields provides investors with decent potential returns.
Why the 0-1 year maturity is attractive ?
The US yield curve currently is Inverted https://www.ustreasuryyieldcurve.com/ The one year Yield is currently around 4.34% compared to its 10 year yield which is at 3.47%
Apart from the yield Indian Investor may get the benefit of Rupee Depreciation. Nine times out of the previous ten years INR has devalued versus the US dollar
Key factors to consider before investing
Interest Rate Movement : All debt funds are subject to interest rate movement. The higher the duration, higher is the impact. The Average Maturity of the fund is close 0.30 years therefore any impact of potential increase or decrease will have minimum impact
Impact of Currency Movement : As the investment is made in US securities any movements in currency US dollar to Rupee will impact your returns. 9 of the 10 calendar years Rupee has depreciated against the US dollar making it favorable for the investors, but one should keep in mind that any possible strengthening or weakening of the INR against the dollar has an impact on the returns.
Who should invest
Investors who have financial goals wherein one has to remit funds to USA, like spending on Education in Foreign Universities, Overseas Vacation or purchase of an asset overseas. If you want to create an US Asset or are planning to Invest in US equities, you can park your funds in the fund to avoid the currency fluctuation. The Fund can be utilised by Importers /Exporters & Businesses who deal with global remittances.
More than 770,000 Indian students went abroad to study in 2022, which is at a 6-year high. Over 200,000 Indian students choose to pursue higher education in the United States during the 2021–22 academic year, a 19% rise over the prior year. The Depreciation of Rupee not only impacts the University fees but also the living costs of students abroad. The investment may act as a hedge against rupee loosing its value.
Some Investors may invest in the Fund as a tactical opportunity as the US treasuries are high quality – low duration maturity with good yields.
Being financial planners, we have come across questions where the client needs a solution to fund his goals, which has an impact of INR depreciation. The fund safeguards your hard-earned money from the depreciation threat, when you are saving for your Child’s University fees, holiday abroad or hold a destination wedding at a foreign soil. Ultra-high net worth individuals purchase real estate in foreign destinations. The Fund will find a place of its own in the varied MF basket gradually.