{"id":35585,"date":"2025-01-21T20:37:54","date_gmt":"2025-01-21T15:07:54","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=35585"},"modified":"2025-01-21T20:37:54","modified_gmt":"2025-01-21T15:07:54","slug":"what-do-treasury-mutual-funds-invest-in","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/what-do-treasury-mutual-funds-invest-in\/","title":{"rendered":"What Do Treasury Mutual Funds Invest In?"},"content":{"rendered":"

The Indian mutual fund industry offers a plethora of financial instruments that form the base of various mutual fund schemes and help investors achieve their diverse financial goals.\u00a0<\/span><\/p>\n

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Treasury Mutual Funds<\/strong><\/h2>\n

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A <\/span>Treasury Mutual Fund<\/b> in India is a mutual fund that primarily invests in short-term debt instruments like Treasury bills (T-Bills), government securities (G-Secs), etc. These funds are designed for investors looking to preserve capital while earning stable returns over a short duration. Treasury funds often serve as a low-risk alternative for investors seeking safety and liquidity in their portfolios. The focus on government-backed or high-credit-quality assets ensures that these funds are less volatile compared to equity or hybrid mutual funds.<\/span><\/p>\n

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For example, the <\/span>Axis Treasury Advantage Growth Direct Plan<\/b> and <\/span>Tata Treasury Advantage Growth Direct Plan<\/b> are classified as “Debt- Low Duration Funds.” They invest in short-duration fixed-income securities, offering stability and predictable returns.<\/span><\/p>\n

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Connection Between Treasury Mutual Funds and Debt Funds<\/b><\/h2>\n

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Treasury Mutual Funds are a subset of <\/span>Debt Mutual Funds<\/b>, which invest broadly in fixed-income securities like bonds, debentures, certificates of deposit (CDs), and commercial papers (CPs). Debt funds can be categorised based on the duration of their investments (e.g., low duration, short duration, medium duration) or the type of instruments they hold (e.g., government bonds, corporate bonds).<\/span><\/p>\n

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Treasury funds specifically focus on government-backed securities, which are perceived as the safest category within debt instruments. They may also invest in highly-rated corporate bonds and money market instruments to enhance returns while keeping risk minimal. Let us see a list of such funds available on<\/span> Kuvera<\/span><\/a>:<\/span><\/p>\n

 <\/p>\n\n\n\n\n\t\n\n\t\n\t\n\t\n\t\n\t\n\t\n\t
Sr. No.<\/th>Scheme<\/th>1-Yr Return<\/th>TER<\/th>\n<\/tr>\n<\/thead>\n
1<\/td>Axis Treasury Advantage Growth Direct Plan<\/td>7.94%<\/td>0.34%<\/td>\n<\/tr>\n
2<\/td>Tata Treasury Advantage Growth Direct Plan<\/td>7.79%<\/td>0.24%<\/td>\n<\/tr>\n
3<\/td>DSP US Treasury FoF Growth Direct Plan<\/td>NA<\/td>0.21%<\/td>\n<\/tr>\n
4<\/td>Axis US Treasury Dynamic Bond ETF FoF Growth Direct Plan<\/td>4.50%<\/td>0.1%<\/td>\n<\/tr>\n
5<\/td>Bandhan US Treasury Bond 0-1 Year FoF Growth Direct Plan<\/td>9.39%<\/td>0.21%<\/td>\n<\/tr>\n
6<\/td>Aditya Birla Sun Life US Treasury 1-3 Year Bond<\/td>8.14%<\/td>0.27%<\/td>\n<\/tr>\n
7<\/td>Aditya Birla Sun Life US Treasury 3-10 Year Bond ETFs<\/td>5.54%<\/td>0.22%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n

Source: Kuvera; January 19, 2025.<\/span><\/p>\n

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The above list indicates that the Axis Treasury Advantage Growth Direct Plan and Tata Treasury Advantage Growth Direct Plan fall under the<\/span> low-duration category<\/span><\/a>, investing in instruments with short maturities, and funds like the DSP US Treasury FoF Growth Direct Plan and Bandhan US Treasury Bond 0-1 Year FoF Growth Direct Plan invest in U.S. treasury securities, offering exposure to international markets.<\/span><\/p>\n

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Further, the Axis Treasury Advantage Growth Direct Plan fund offers stable returns with a moderate expense ratio, making it ideal for low-risk, short-term investors<\/span>. In contrast, the<\/span>\u00a0<\/b>Tata Treasury Advantage Growth Direct Plan has<\/span> slightly lower returns compared to the Axis fund but with lower TER, enhancing net returns for investors.<\/span><\/p>\n

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Moreover, the DSP US Treasury FoF Growth Direct Plan offers exposure to U.S. treasuries, suitable for investors seeking global diversification but involves currency risk, and the Bandhan US Treasury Bond 0-1 Year FoF Growth Direct Plan delivers the highest 1-year return among the listed funds. However, investors should consider currency and interest rate risks.<\/span><\/p>\n

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Additionally, the Aditya Birla Sun Life US Treasury 1-3 Year Bond may be suitable for medium-term goals, but a higher TER may slightly impact net returns. Nonetheless, the<\/span> Aditya Birla Sun Life US Treasury 3-10 Year Bond ETFs could be ideal for long-term investors willing to accept interest rate risks for potentially higher returns over time.<\/span><\/p>\n

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Let us have a look at the <\/span>constituents of treasury mutual funds<\/span> in India<\/span>. <\/b>Typically, they consist of the following instruments:<\/span><\/p>\n

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Benefits of Investing in Treasury Mutual Funds<\/b><\/h2>\n

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Investing in treasury mutual funds offers several advantages:<\/span><\/p>\n

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1. Low Risk<\/b><\/h4>\n

Treasury funds primarily invest in government securities, which have minimal default risk and are ideal for risk-averse investors.<\/span><\/p>\n

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2. Stable Returns<\/b><\/h4>\n

Compared to equity funds, treasury funds provide consistent and predictable returns. For instance, the Axis Treasury Advantage Growth Direct Plan delivered a 1-year return of 7.94%, offering a steady income stream.<\/span><\/p>\n

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3. High Liquidity<\/b><\/h4>\n

Investors can redeem their investments in these funds quickly without significant loss in value.<\/span><\/p>\n

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4. Diversification<\/b><\/h4>\n

Treasury funds diversify portfolios and act as a hedge against market volatility, especially during economic downturns.<\/span><\/p>\n

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5. Global Exposure<\/b><\/h4>\n

Funds like Bandhan US Treasury Bond 0-1 Year FoF Growth Direct Plan offer exposure to international markets, providing diversification benefits and potential for higher returns.<\/span><\/p>\n

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Things to Consider While Investing in Treasury Mutual Funds<\/b><\/h2>\n

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Despite their benefits, there are several factors to consider before investing in treasury mutual funds, such as:<\/span><\/p>\n

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1. The Total Expense Ratio (TER)<\/b><\/h4>\n

The TER represents the cost of managing the fund. A lower TER enhances returns over time. For instance, the Axis US Treasury Dynamic Bond ETF FoF Growth Direct Plan has a TER of 0.10%, indicating cost-efficiency in comparison to other funds.<\/span><\/p>\n

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2. Interest Rate Risk<\/b><\/h4>\n

Debt funds, including treasury funds, are sensitive to changes in interest rates. Longer-duration funds like Aditya Birla Sun Life US Treasury 3-10 Year Bond ETFs are more exposed to interest rate fluctuations impacting bond prices and subsequent returns.<\/span><\/p>\n

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3. Credit Risk<\/b><\/h4>\n

While treasury funds primarily invest in government securities, some funds may include corporate bonds. It is essential to check the credit quality of these bonds to avoid potential default risk.<\/span><\/p>\n

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4. Liquidity Needs<\/b><\/h4>\n

Investors should align their investment horizon with the fund\u2019s duration. For instance, short-duration funds are suitable for immediate liquidity needs, while longer-duration funds are better for medium- to long-term goals.<\/span><\/p>\n

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5. Tax implications<\/b><\/h4>\n

Capital gains taxes are applicable here as decided by the government from time to time.<\/span><\/p>\n

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6. Currency Risk<\/b><\/h4>\n

Funds investing in foreign treasury securities, like DSP US Treasury FoF Growth Direct Plan, are subject to currency risk. Fluctuations in the currency exchange rates, especially INR-USD, can impact returns.<\/span><\/p>\n

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7. Investment Objective<\/b><\/h4>\n

Treasury funds are best suited for conservative investors seeking stability and moderate returns. Investors looking for high growth may consider equity funds instead.<\/span><\/p>\n

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\"FD<\/a><\/h4>\n

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Wrapping Up<\/b><\/h2>\n

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To sum up, treasury mutual funds are suitable for conservative investors seeking capital preservation, stability, and liquidity. With options ranging from low-duration domestic funds to foreign treasury investments, they cater to diverse financial goals and risk appetites. However, investors must evaluate factors like expense ratio, interest rate sensitivity, credit quality, and tax implications before investing.<\/span><\/p>\n

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Hence, by aligning your investment objectives with the features of various funds, you can optimise your portfolios for both safety and steady income.<\/span><\/p>\n

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You should never forget to read all scheme-related documents carefully before investing, as mutual funds are impacted by market volatility.<\/span><\/p>\n

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Interested in how we think about the markets?<\/strong><\/p>\n

Read more:\u00a0Zen And The Art Of Investing<\/a><\/p>\n

Watch here: <\/strong>Rebalancing for Mutual Fund Investors<\/p>\n

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