Gilt ETFs which had met with limited success due to lack of investor appetite have made a comeback. Recently, Reliance and SBI have come out with their Gilt ETFs.
“Sometimes, institutional investors have a short term view and they invest intraday in such funds which is not possible in a gilt fund,” says D P Singh, ED & CMO - Domestic Markets, SBI MF.
Since these ETFs are typically meant for institutional investors and HNIs, fund houses have kept a higher ticket size in such funds. For instance, the minimum ticket size of R* Shares Long Term Gilt ETF is Rs.5 lakh.
While both SBI and Reliance MF’s Gilt ETFs invest in gilt securities they are packaged differently. While SBI MF’s Gilt ETF invests 95% of assets in securities covered by the Nifty 10-year benchmark GSec Index, Reliance MF’s Gilt ETF invests in a mix of 8-13 year tenure securities.
Since 10 year Gilt securities are the most sought after, they tend to offer lesser yields as compared to other tenured Gilt securities. A Reliance MF spokesperson said that its product can offer a higher yield as it invests in a more diversified range of securities.
So how do Gilt ETFs score over gilt funds? Besides lower costs, these funds help institutional investors make quick returns if they have a short term view. Apart from this, they can invest in these products through their demat accounts which provides ease of transaction.
Gilt ETFs are not a new phenomenon. In the past, Motilal Oswal MF had a 10 year Gilt ETF product but it had to wind up the scheme in October 2015 due to lack of investor appetite. Also, LIC Nomura MF had launched its Gilt ETF - LIC Nomura G-SEC Long Term Exchange Traded Fund (ETF) in 2014 and this fund too has not taken off in a big way. Value Research data shows that this ETF currently manages an AUM of Rs. 71 crore.
While Gilt ETFs have met with limited success in the past, fund officials say that the interest in such ETFs will be high during a falling interest rate scenario. Also, with IRDAI mandating insurers to invest a maximum of Rs. 50 lakh under each creation unit of Gilt ETFs offered by fund houses, they expect that Gilt ETFs can emerge as a big category going forward.
