Mumbai-based Bandhan Mutual Fund has launched what it says is India’s first US debt (ETF) fund, an open-ended fund of fund investing in units of overseas index funds or exchange-traded funds which track an index with US treasury securities with a maturity range of zero to one year as its constituents.

The Bandhan US Treasury Bond 0-1 Year Fund of Fund offers investors a convenient route to create a US dollar asset that benefits from the relatively high quality, reasonable safety, and current high yield of US treasuries.

The fund offering opened on March 10 and closes on March 23. Investment can be made through licensed mutual fund distributors and online platforms, as well as directly with Bandhan Mutual.

Vishal Kapoor, chief executive officer of Bandham Asset Management Company, says: “Bandhan US Treasury Bond 0-1 Year Fund of Fund seeks to provide investors the opportunity to create a USD asset for funding a near-term or defined expense, without wanting to take any equity market-linked volatility. The fund invests in US treasuries with 0 to one-year maturity, which means it offers a much-needed blend of relatively high-quality and low-volatility investment opportunity.

“Currently, mutual funds offered global diversification via equity-oriented funds, but this fund is another step in offering opportunities via debt-oriented fund. Additionally, the spread between the US and India's one-year government bond yields has narrowed significantly from about 390bp to 227bp since February 2022, clearly demonstrating that exposure to US treasury bonds is relatively more attractive for Indian investors,” Kapoor adds.

Tai Hui, APAC chief market strategist at J.P. Morgan Asset Management, notes: “Rates are set to stay higher and longer until the Fed brings inflation back to its 2% target, but there is still a long way to go and the path is likely to be bumpy. Hence, exposure to short-duration US treasuries could help investors seek a consistent source of yield amid the uncertain inflation outlook and a still-tight job market.”

Investors globally favour US treasuries, which are considered the highest quality asset class (Fitch AAA rated versus India sovereign rating of BBB-), Bandhan says. It now also offers relatively attractive yields, with US treasuries maturing within one year now at about 5% up from less than 1% a year ago.

The maturity period of zero to one year could be considered a sweet spot for investment owing to the higher yields being offered versus longer-term securities, according to Bandhan. The relatively higher USD return can be further complemented by any weakening in the Indian currency against the US dollar, as has been witnessed in nine out of the last 10 calendar years.

Bandhan US Treasury Bond 0-1 year Fund of Fund intends to invest in an overseas fund with exposure to zero-to-one-year US treasuries, currently via the JPMorgan BetaBuilders US Treasury Bond 0-1 year UCITS ETF. The fund will be benchmarked against the ICE 0-1 Year US Treasury Securities Index.