The new fund offer closes for subscription on September 23.
After ICICI Prudential, DSP BlackRock too has come out with its 10 year DSP BlackRock Constant Maturity G-Sec Fund.
Gilt funds have been out of favour in the recent past as RBI continued its fight against inflation by keeping rate cuts on hold. However, the category has gained traction after macro-economic data showed some sign of improvements which may provide headroom to RBI to cut the key rates. After a few months of pause, the market is expecting that either the repo rate will be left unchanged or reduced from the current levels.
Keeping this in mind, DSP BlackRock Mutual Fund has launched a 10-year open ended income fund called DSP BlackRock Constant Maturity 10Y G-Sec Fund. The fund aims to provide reasonable returns by investing in portfolio of government securities with weighted average maturity of around 10 years. The NFO of the fund is currently open for subscription and closes on September 23. Marzban Irani will manage this fund.
In 2012, Axis had launched a similar fund called 10 Axis Constant Maturity Fund. Even in rising interest rate scenario, the fund has delivered an absolute returns of 6.53%.
An ideal time to invest in these funds is when interest rates are expected to fall, because there is an inverse relationship between the price of the G-Sec and interest rates. A fall in the interest rate leads to a rise in the bond prices as well as the NAV of the gilt fund and vice-versa. Also, longer the duration of the securities/portfolio higher will be the capital appreciation and vice-versa.
Barring July, gilt funds saw net outflows since the beginning of FY 2014-15. The category witnessed net outflows of Rs.900 crore in the first quarter (April-June) of FY 2013-14. However, amid expectations of a rate cut, the category has picked up some steam in July.
Value Research data shows that medium and long term gilt funds have delivered an absolute return of 9% in a year ended August 31.
AMFI data shows that gilt funds saw net outflows of Rs 209 crore in August.