We recommend active duration due to high term premium and accrual strategy due to better credit spreads, to navigate current fixed income market

1. FIXED INCOME UPDATE
Aug 2021
Fixed Income Update
Macro Update
* Change in basis points (bps) Data Source – RBI, Mospi.Nic.in, CRISIL Fixed Income Database, LAF – Liquidity Adjustment Facility, MSF – Marginal Standing Facility,
SLF – Standing Liquidity Facility, CP - Commercial Paper, CD – Certificateof Deposit, CB – Corporate Bond, IIP – India Industrial Production, CPI – Consumer Price Index,
WPI – Wholesale Price Index, CAD – Current Account Deficit, GDP – Gross Domestic Product
Interbank call money rates remained below the RBI’s repo rate of 4% in
June as overall systematic liquidity remained in surplus. The central
bank held intermittent variable rate reverse repo auctions to drain out
excess liquidity
Gilts ended slightly higher with the yield of the 10-year benchmark
5.85% 2030 paper settling at 6.20% on July 31, 2021, compared with
6.05% on June 30,2021 .
Bank deposit and credit growth raised to 10.7% and 6.4% on-year in
July 2021* compared with 9.7% and 5..5% in June, respectively
Source: CRISIL, data as on July 31, 2021
Bank Credit Growth Bank Deposit Growth
6.4% 10.7%
Money Market
Tenure CD (%) Change* CP (%) Change*
1M 3.32 -1 3.60 -1
3M 3.41 1 3.70 7
6M 3.60 -12 4.05 0
12M 3.99 -11 4.55 10
Bond Market
Tenure G-Sec (%) Change* AAA CB (%) Change*
1Y 3.93 -12 4.10 -20
3Y 4.64 -27 5.30 -15
5Y 5.74 2 6.00 -10
10Y 6.20 15 6.95 5
Data Source – RBI, Mospi.Nic.in, CRISIL Fixed Income Database ;LAF-Liquidity
Adjustment Facility, MSF – Marginal Standing Facility, SLF – Standing Liquidity Facility,
CP - Commercial Paper, CD – Certificate of Deposit, CB – Corporate Bond, IIP – India
Industrial Production, CPI – Consumer Price Index, WPI – Wholesale Price Index,
CAD – Current Account Deficit, GDP – Gross Domestic Product
Source: CRISIL, data as on July 31, 2021
CRUDE: Brent crude prices rose nearly 7.7% to close at
$74.62 per barrel on June 30, 2021, vis-à-vis $69.32 per
barrel on May 31, 2021
INFLATION: CPI raised to 6.30% in June 2021, compared
with 6.26 % in May 2021 due to higher food and fuel
prices.
CURRENCY : Rupee declined 0.1% to settle at Rs 74.41
per dollar on July 31 from Rs 74.33 per dollar on June 30
GILTS: Gilts were little changed at month-end, with the
yield of the 10-year benchmark 5.85% 2030 paper
settling at 6.20% on July 31 compared with 6.05% on
June 30
Tenure 6M 1Y 3Y 5Y 10Y
AAA 0.19 0.51 0.61 0.18 0.65
AA 2.77 3.09 3.19 3.33 3.80
A 4.89 5.21 5.31 5.51 5.98
Corporate bond spreads
-10000
-8000
-6000
-4000
-2000
0
2000
4000
31-Jul-16
31-Jul-17
31-Jul-18
31-Jul-19
31-Jul-20
31-Jul-21
Banking
liquidity
(INR
bn)

2. Our Outlook
Gilts prices ended slightly lower with the yield on the 10-year benchmark 5.85% 2030 paper settling at 6.20% on July 31, 2021,
compared with 6.05% on June 30.(Source:CRISIL)
Yields rose with the firming up of inflation and the central government announcing pandemic relief measures implying an increase to
the already high scheduled market borrowing.
Retail inflation eased to 6.26% in Jun’21, from 6.30% in May’21, staying above RBI Monetary Policy Committee’s (MPC) upper range of
6%, for the 2nd consecutive month. While inflation eased compared to last month, higher fuel prices and sticky core inflation pushed
CPI to its highest in 2021 in real terms.
With inflation numbers easing below May’21 levels, RBI will have more leeway to focus on stimulating growth and keeping borrowing
costs low in the upcoming monetary policy meeting in August.
The Finance Minister announced several relief measures to the tune of Rs 6.29 lakh crs which includes a mix of direct fiscal cost to the
government as well as additional contingent liabilities in the form of credit guarantees to various sectors.
On the economy front, following a dip in the new Covid 19 cases over the last few weeks, many states have commenced a
phased unlocking over the month of June 2021. The early high frequency indicators confirm a sequential improvement in June 2021.
Concerns over a third wave and impact of a new Delta plus variant are, however, under watch.
Going forward, RBI may have to do a fine balancing act. On one hand, there is a possibility of further downside risk to the growth
recovery, which in normal conditions would have warranted for easing of monetary condition and on the other hand RBI would need to
keep an eye on upside risk to inflation.
Hence, we believe the above evolving conditions points towards a more nimble and active duration management strategy which may
help in navigating higher interest rate sensitive period. Also, as communicated earlier, we believe that we are at the fag-end of interest
rate cycle and the above mentioned strategy would provide better accrual (active strategy which may take advantage of higher term
premium) and would help in mitigating mark-to-market impact (active strategy of having adequate short duration instruments). It may
be an opportune time to invest in floating rate bond in this interest rate scenario with expected volatility.
In the coming years, we recommend following strategies: Accrual Strategy and Active Duration strategy. Accrual strategy
due to high spread premium which is still prevalent between the spread assets and AAA & MMI instruments, as going forward capital
appreciation strategy may take a back seat due to limited rate cuts. Term premiums (spread between longer and shorter end of the
yield curve) remains one of the highest seen historically, because of which active duration strategy is recommended to benefit from
the high term premium. In our portfolios, we may follow barbell strategy i.e having high exposure to extreme short-end instruments
with an aim to protect the portfolio from interest rate movements and high exposure to long-end instruments with an aim to benefit
from higher carry.
OMO – Open Market Operations; MMI – Money Market instruments
Debt Valuation Index for duration risk management
Low Duration
Data as on June 30, 2021. Debt Valuation Index considers WPI, CPI, Sensex returns, Gold returns and Real estate returns over G-Sec
yield, Current Account Balance and Crude Oil Movement for calculation.
Aggressive
Highly Aggressive

3. Approach Scheme Name Call to Action Rationale
Arbitrage ICICI Prudential Equity Arbitrage Fund
Invest with 3
Months & above
horizon
Spreads at
reasonable
levels
Short Duration
ICICI Prudential Savings Fund
ICICI Prudential Ultra Short TermFund
ICICI Prudential Floating InterestFund
Invest for parking
surplus funds
Accrual +
Moderate
Volatility
Accrual Schemes
ICICI Prudential Credit Risk Fund
ICICI Prudential Medium Term Bond Fund
Core Portfolio with
>1 Yr investment
horizon Better Accrual
Dynamic Duration ICICI Prudential All Seasons BondFund
Long Term Approach
with >3 Yrs
investment horizon
Active
Durationand
Better Accrual
Our Recommendation
Riskometers
ICICI Prudential Ultra Short Term Fund is suitable for investors who are seeking*:(An open
ended ultra-short term debt scheme investing in instruments such that the Macaulay duration of the
portfolio is between 3 months and 6 months)
Moderate
LOW HIGH
Investors understand that their
principal will be at Moderate risk
• Short term regular income
• An open ended ultra-short term debt scheme investing in a range of debt and money
market instruments
*Investorsshould consulttheir financial advisors if in doubt about whether the product is suitablefor them.
ICICI Prudential Savings Fund is suitable for investors who are seeking*:(An open ended
low duration debt scheme investing in instruments such that the Macaulay duration of the portfolio
is between 6 months and 12 months.)
Moderate
• Short term savings
• An open ended low duration debt scheme that aims to maximize income by investing in
debt and money market instruments while maintaining optimum balance of yield, safety
and liquidity
LOW HIGH
Investors understand that their
principal will be at Moderately Low
risk
*Investorsshould consulttheir financial advisors if in doubt about whether the product is suitablefor them.
None of the aforesaid recommendations are based on any assumptions. These are purely for reference and the investors are
requested to consult their financial advisors before investing.
Note: The Macaulay duration is the weighted average term to maturity of the cash flows from a bond. The weight of each cash flow is
determined by dividing the present value of the cash flow by the price.
Please note that the Risk-o-meter(s) specified above will be evaluated and updated on a monthly basis as per SEBI circular dated October 05, 2020 on Product Labeling in
Mutual Fund schemes - Risk-o-meter. Please refer to https://www.icicipruamc.com/news-and-updates/all-news for more details.

4. Riskometers
ICICI Prudential Medium Term Bond Fund is suitable for investors who are seeking*:(An
open ended medium term debt scheme investing in instruments such that the Macaulay duration of the portfolio
is between 3 Years and 4 Years. The Macaulay duration of the portfolio is 1 Year to 4 years under anticipated
adverse situation)
Moderate
LOW HIGH
Investors understand that their
principal will be at Moderate risk
• Medium term savings
• A debt scheme that invests in debt and money market instruments with a view to
maximize income while maintaining optimum balance of yield, safety and liquidity
*Investorsshould consulttheir financial advisors if in doubt about whether the product is suitablefor them.
ICICI Prudential All Seasons Bond Fund is suitable for investors who are seeking*:(An
open ended dynamic debt scheme investing across duration) Moderate
LOW HIGH
Investors understand that their
principal will be at Moderate risk
• All duration savings
• A debt scheme that invests in debt and money market instruments with a view to
maximize income while maintaining optimum balance of yield, safety and liquidity
*Investorsshould consulttheir financial advisors if in doubt about whether the product is suitablefor them.
ICICI Prudential Credit Risk Fund is suitable for investors who are seeking*: (An open
ended debt scheme predominantly investing in AA and below rated corporate bonds) Moderate
LOW HIGH
Investors understand that their
principal will be at Moderate risk
• Medium term savings
• A debt scheme that aims to generate income through investing predominantly in AA and
below rated corporate bonds while maintaining the optimum balance of yield, safety and
liquidity
*Investorsshould consulttheir financial advisors if in doubt about whether the product is suitablefor them.
ICICI Prudential Floating Interest Fund is suitable for investors who are seeking*:(An open
ended debt scheme predominantly investing in floating rate instruments (including fixed
rate instruments converted to floating rate exposures using swaps/derivatives)
Moderate
LOW HIGH
Investors understand that their
principal will be at Moderate risk
• Short term savings
• An open ended debt scheme predominantly investing in floating rate instruments
*Investorsshould consulttheir financial advisors if in doubt about whether the product is suitablefor them.
Please note that the Risk-o-meter(s) specified above will be evaluated and updated on a monthly basis as per SEBI circular dated October 05, 2020 on Product Labeling in
Mutual Fund schemes - Risk-o-meter. Please refer to https://www.icicipruamc.com/news-and-updates/all-news for more details.
ICICI Prudential Equity Arbitrage Fund (Anopen ended schemeinvesting inarbitrage opportunities) is suitable
for investors who are seeking* Moderate
LOW HIGH
• Short Term Income Generation
• A hybrid scheme that aims to generate low volatility returns by using arbitrage and other
derivative strategies in equity markets and investments in debt and money market
instruments
*Investorsshould consulttheir financial advisors if in doubt about whether the product is suitablefor them.
Investors should understand that
their principal will be at low risk

5. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
In preparation of the material contained in this document, ICICI Prudential Asset Management Company Limited (the AMC) has used
information that is publicly available, including information developed in-house. Some of the material used in the document may have
been obtained from members/persons other than the AMC and/or its affiliates and which may have been made available to the AMC
and/or to its affiliates. Information gathered and material used in this document is believed to be from reliable sources. The AMC,
however, does not warrant the accuracy, reasonableness and / or completeness of any information. We have included statements /
opinions / recommendations in this document, which contain words, or phrases such as “will”, “expect”, “should”, “believe” and similar
expressions or variations of such expressions that are “forward looking statements”. Actual results may differ materially from those
suggested by the forward looking statements due to risk or uncertainties associated with our expectations with respect to, but not
limited to, exposure to market risks, general economic and political conditions in India and other countries globally, which have an
impact on our services and / or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in
interest rates, foreign exchange rates, equity prices or other rates or prices etc. The AMC (including its affiliates), the Mutual Fund, the
trust and any of its officers, directors, personnel and employees, shall not be liable for any loss, damage of any nature, including but not
limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this
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other data given in this document are dated and the same may or may not be relevant in future. The information contained herein should
not be construed as a forecast or promise nor should it be considered as an investment advice. Investors are advised to consult their
own legal, tax and financial advisors to determine possible tax, legal and other financial implication or consequence of subscribing to
the units of ICICI Prudential Mutual Fund. The sector(s)/stock(s) mentioned in this communication do not constitute any recommenda-
tion of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sector(s)/stock(s). Past performance
may or may not be sustained in the future. The portfolio of the scheme is subject to changes within the provisions of the Scheme
Information document of the scheme. Please refer to the SID for more details.
The information contained herein is only for the purpose of information and not for distribution and do not constitute an offer to buy or
sell or solicitation of any offer to buy or sell any securities or financial instruments in the United States of America ("US") and/or Canada
or for the benefit of US persons (being persons falling within the definition of the term "US Person" under the US Securities Act, 1933,
as amended) or persons residing in Canada.
Disclaimer
Please note that the Risk-o-meter(s) specified above will be evaluated and updated on a monthly basis as per SEBI circular dated October 05, 2020 on Product Labeling in
Mutual Fund schemes - Risk-o-meter. Please refer to https://www.icicipruamc.com/news-and-updates/all-news for more details.