Union Medium Duration Fund Review
Union mutual funds is planning to launch medium duration debt fund that would open for subscription on August 24, 2020. Medium duration funds invest in debt securities of 3 to 4 years. These funds are considered to be better than bank FD. Post Franklin debt mutual funds fiasco, investors are concerned about investing in debt mutual funds. In this situation, should you invest in such medium duration funds? In this article we would provide Union Medium Duration Fund NFO issue details and various risk factors associated with such funds.
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Issue details of Union Medium Duration Fund (NFO)
This is an open-ended equity mutual fund scheme.
This scheme would open for subscription on August 24, 2020
This scheme would close for subscription on September 7, 2020
Since this is an open ended scheme, it would again open for subscription after the NFO period, i.e. from September 21, 2020
This scheme is available in both regular and direct plans.
This plan offers both growth option and dividend option.
This scheme is available for lump sum and SIP investment.
Minimum investment is Rs 5,000 and in multiples of Rs 1 there-off for lump sum investments.
Minimum investment is Rs 2,000 per month for monthly SIP and for a tenure of 6 months.
The NAV of the fund is Rs 10 per unit during the NFO initial subscription.
There is no entry load to invest in this fund.
There is an exit load of 1% if you redeem more than 15% of MF units within 1 year.
This scheme is classified as MODERATE risk scheme.
Scheme total expense ratio (TER) is estimated at a maximum of 2%.
Download Union Medium Duration Fund SID
What is the investment objective of this MF scheme?
It is open ended medium term debt scheme investing in instruments such that the Macaulay duration of the portfolio is between 3 to 4 years.
The investment objective of the Scheme is to generate income and capital appreciation by investing in Fixed Income Securities and Money Market Instruments. However, there is no assurance that the Investment Objective of the Scheme will be achieved.
There is no assurance or guarantee that the investment objective of the scheme will be realized.
Who is eligible to invest in this mutual fund scheme?
The following can invest in this scheme.
1) Indian resident adult individuals, either singly or jointly.
2) Minors through Parents/Lawful Guardian.
3) Hindu Undivided Family (HUF) through its Karta.
4) Partnership Firms in the name of any one of the partners.
5) Proprietorship in the name of the sole proprietor.
6) Companies, Body Corporate, Societies, Association of Persons, Body of Individuals, Clubs and Public Sector Undertakings registered in India if authorized and permitted to invest under applicable laws and regulations.
8) Non-Resident Indians (NRIs) / Persons of Indian Origin (PIO) on full repatriation basis or on non-repatriation basis;
Complete list of eligible participants who can invest can be checked in the NFO prospectus.
Who is the Fund Manager of Union Medium Duration Fund?
Here are the fund manager’s details.
Mr. Parijat Agrawal – Head – Fixed Income
Mr. Anindya Sarkar – Fund Manager – Fixed Income
What is the benchmark for this scheme?
The benchmark for this scheme is CRISIL Medium Term Debt Index.
What is the allocation pattern in this mutual fund?
This fund investment pattern is as follows:
1) It invests 0% to 100% of investment in Debt and Money Market Instruments will be such that the Macaulay Duration of the portfolio will be between 3 years to 4 years under normal circumstances. In case of anticipated adverse situation(s), the portfolio Macaulay Duration will be between 1 year to 4 years. The risk profile in this segment is low to medium.
2) It would invest 0% to 10% in units issued by REITs and InvITs. The risk profile in this segment is medium to high.
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Why to invest in the Union Medium Duration Fund?
Here are a few reasons to invest in such debt funds.
1) Medium duration funds would invest in instruments which would mature in 3 to 4 years time frame. If you are looking for investing for 3-4 years, you can invest in such funds.
2) The Scheme aims to have a strategic allocation of the portfolio in bonds issued by Public Sector Unit (PSU) /Private Companies Bonds with a credit rating of AAA & AA+. It also aims to have a tactical allocation in securities issued by the Government of India which can protect the portfolio to the majority of the extent.
2) Medium duration debt funds can provide 6% to 9% annualized returns though not guaranteed. If you are looking for returns higher than bank FDs, one can invest in such funds.
Some key risk factors you should consider before you invest in such funds
One should consider some of these risk factors / negative factors before investing.
1) These debt funds would invest in corporate debt instruments which have turned to be high risk post Franklin India debt funds fiasco where they have close down the debt funds and investors are yet to receive their complete investment.
2) Such debt funds would have interest rate risks (interest rate increases, bond yield fall and vice versa).
3) This scheme would invest in derivatives, which is high risk.
4) You can refer complete risk factors of investing in this particular scheme in SID / KIM / NFO prospectus.
Performance of existing Medium Duration Debt Funds in India
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Should you invest in Union Medium Duration Fund NFO?
Union Medium Duration Fund invests in debt instruments of government enterprises / public sector companies and other corporates. One should not forget about Franklin India debt funds crisis where investors’ money in still stuck. Medium duration funds can provide higher returns compared to bank fixed deposits for a 3-4 years tenure. If you are high risk to moderate risk investor, you can invest in such funds. If you don’t want to experiment with new funds, you can invest in some of the top performing medium duration funds indicated above. Low risk investors should stay away from such schemes.