ICICI Prudential Short Term Plan is Short-duration Income fund that seeks to capture accrual opportunities at low levels of risk and endeavours to have capital appreciation through marginal exposure to securities for directional calls on interest rates.

The scheme endeavors to manage the portfolio with a low level of risk with the securities being chosen to ensure good credit quality (i.e. with long-term rating between AAA and AA), reasonable liquidity and low interest rate risk.

The scheme intends to generate reasonable levels of returns with lower levels of risk & volatility.

Key highlights of the scheme:

Predominant focus on accrual income with average maturity in the range of 2-3 years.

Seeks to have marginal exposure to long maturity papers (5+ years , not exceeding 15 years in Govt. securities-Central & state)

Endeavor to generate reasonable Risk-adjusted returns i.e. reasonable returns with lower volatility.

Indicative investment horizon for the Scheme is of 6-12 months.

The fund will endeavor to limit the modified duration upto 3 years in the current market conditions.

Predominant exposure in the 1-5 year segment PFI (Public Financial Institutions)/ Corporate bonds and SDLs (State Development Loans) with an aim to generate accrual and incidental capital appreciation (explained below as Natural MTM*).

In addition, the scheme would also seek to benefit from capital appreciation / Mark-to-market gains (MTM) from exposure to long maturity papers. This long maturity component may not be beyond 15 years and may constitute 10% or lower in the portfolio based on interest rate views (such a restriction may contain the volatility in the portfolio).

What to expect going forward:

Spread opportunity in SDLs is playing out: The scheme had taken exposure to SDLs during Sept-October 2012 when the yield differential between SDL and corporate bonds was low and also the spread between SDL and G-sec were high compared to the historical average. The scheme has benefited from capital appreciation in past 6-7 months from its exposure to SDLs due to their spread compression over G-sec.

The scheme would seek to move from SDLs to corporate bonds on account of spread opportunities available in corporate bonds compared to SDLs. Thus, the Scheme may consider optimizing the spread opportunity that corporate bonds offer over GOI Securities vis-à-vis that of SDLs over GOI Securities .

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