Kotak CRISIL-IBX Financial Services 3-6 Months Debt Index Fund-Dir (G) : NFO Details

Kotak Mahindra Mutual Fund has launched the Kotak CRISIL-IBX Financial Services 3-6 Months Debt Index Fund-Dir (G), an open-ended index fund designed to track the CRISIL-IBX Financial Services 3-6 Months Debt Index. The fund aims to generate returns in line with the index by investing in Commercial Papers (CPs), Certificates of Deposit (CDs), and corporate bond securities that mature within 3 to 6 months from the date of inclusion in the index.

Being a short-duration debt fund, Kotak CRISIL-IBX Financial Services 3-6 Months Debt Index Fund-Dir (G) is structured to offer stable and predictable returns with lower risk, making it a suitable option for investors looking for short-term investments. However, like any market-linked investment, returns are subject to market fluctuations. This New Fund Offer (NFO) allows investors to participate in a diversified pool of high-quality debt instruments within the financial services sector, ensuring liquidity and risk management.

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Details of the NFO: Kotak CRISIL-IBX Financial Services 3-6 Months Debt Index Fund- Direct (G)

Investment Objective and Strategy

Objective:

The investment objective of the Kotak CRISIL-IBX Financial Services 3-6 Months Debt Index Fund – Direct (G) is to generate returns that are commensurate (before fees and expenses) with the performance of CRISIL-IBX Financial Services 3-6 Months Debt Index that seeks to track the performance of Commercial Papers (CPs), Certificates of Deposit (CDs) & corporate bond securities maturing within 3 to 6 months from the date of inclusion in the index.

However, there can be no assurance that the investment objective of the Scheme will be achieved.

Investment Strategy:

The Kotak CRISIL-IBX Financial Services 3-6 Months Debt Index Fund – Direct (G) follows a passive investment strategy. The Scheme will replicate income over the constant maturity period of its underlying index i.e., CRISIL-IBX Financial Services 3-6 Months Debt Index, subject to tracking errors. Accordingly, the Scheme will invest in securities in line with the benchmark index of the Scheme. In line with constant maturity profile of the underlying Index, the scheme follows perpetual structure, wherein the scheme would be rebalanced as per set frequency and remain in line with maturity profile. The scheme shall endeavour to replicate the index. In case the Scheme is not able to replicate the index the Fund Manager may invest subject to deviations as permitted by SEBI Master Circular No. SEBI/HO/IMD/IMDPoD-1/P/CIR/2024/90 dated June 27, 2024, as amended from time to time.

During normal circumstances, the Kotak CRISIL-IBX Financial Services 3-6 Months Debt Index Fund – Direct (G) exposure to debt and money market instruments will be in line with the asset allocation table. However, in case of maturity of instruments in the Scheme portfolio, the reinvestment will be in line with the index methodology. A small portion of the net assets will be held as cash or will be invested in debt and money market instruments (as mentioned under asset allocation section) permitted by SEBI/RBI including TREPS or in alternative investment for the TREPS as may be provided by the RBI, to meet the liquidity requirements under the Scheme Portfolio Turnover.

Portfolio Turnover is a term used to measure the volume of trading that occurs in a Scheme's portfolio during a given time period. The scheme being a passively managed open-ended constant maturity index scheme, it is expected that there would be a number of subscriptions and redemptions on a daily basis. Hence, it is difficult to estimate with any reasonable measure of accuracy, the likely turnover in the portfolio. Generally, turnover will depend upon the extent of purchase and redemption of units and the need to rebalance the portfolio on account of change in the composition, if any, and corporate actions of securities included in the Index. The Scheme has no specific target relating to portfolio turnover.

What are the Risks associated with Kotak CRISIL-IBX Financial Services 3-6 Months Debt Index Fund – Direct (G)?

The Scheme is a passively managed scheme. The Scheme shall endeavor to invest in the securities included in its Underlying Index regardless of their investment merit, subject to deviations permitted as per extant SEBI circulars as amended from time to time. The AMC does not attempt to individually select securities or to take defensive positions in declining markets. The performance of the Underlying Index will have a direct bearing on the performance of the Scheme. The Scheme may be affected by a general decline in the Indian markets relating to its Underlying Index.

• Portfolio Concentration Risk To the extent that the Scheme may concentrate its investments in the securities of certain issuers sectors, the Scheme will therefore be subject to the risks associated with such concentration. In addition, the
Scheme may be exposed to higher levels of volatility and risk than would generally be the case in a more diverse fund portfolio of debt securities. Such risks may impact the Scheme to the extent that it invests in particular issuers sectors even in cases where the investment objective is more generic.

• Tracking errors / difference are inherent in any index fund and such errors may cause the scheme to generate returns which are not in line with the performance of the CRISIL-IBX Financial Services 3-6 Months Debt Index or one or more securities covered by / included in the underlying index.

• To the extent that some assets/ funds may be deployed in debt/money market operations, the scheme will be subject to risks relating to such deployment / operations and may also contribute to tracking errors/ difference

What are the Risk Mitigation Strategies for Kotak CRISIL-IBX Financial Services 3-6 Months Debt Index Fund – Direct (G)?

The Kotak CRISIL-IBX Financial Services 3-6 Months Debt Index Fund – Direct (G) employs various risk management strategies to ensure stability and mitigate potential losses.

• Government Securities and Triparty Repo Risk: The fund maintains sufficient margins as mandated by CCIL, which actively monitors and requests additional margins in real-time. Strict eligibility requirements for participation in these segments help minimize settlement risks, though opportunity losses may still occur.
• Market/Volatility Risk: As a constant maturity index fund, it passively replicates the index and operates at the short end of the yield curve, which inherently limits volatility. This structure helps the fund remain relatively stable, making it a suitable choice for investors seeking low-risk, short-term investments.

What type of Investors should invest in this Kotak CRISIL-IBX Financial Services 3-6 Months Debt Index Fund – Direct (G)?

Kotak Mahindra Mutual Fund has introduced the Kotak CRISIL-IBX Financial Services 3-6 Months Debt Index Fund – Direct (G), an open-ended index fund designed to replicate the CRISIL-IBX Financial Services 3-6 Months Debt Index. The fund primarily invests in Commercial Papers (CPs), Certificates of Deposit (CDs), and corporate bonds maturing within 3 to 6 months from their inclusion in the index.

As a short-duration debt fund, it aims to provide stable and predictable returns with relatively low risk, making it an attractive option for investors seeking short-term investment opportunities. While the fund minimizes volatility due to its short-maturity structure, it remains subject to market fluctuations. The New Fund Offer (NFO) allows investors access to a diversified pool of high-quality fixed-income securities.