LIC Nomura Mutual Fund has launched one-of-its-kind open ended Gilt ETF called LIC Nomura G-Sec Long Term Exchange Traded Fund (ETF).
The fund closed for subscription today. The fund house claims that it is Asia’s first such fund.
The fund aims to provide returns that closely correspond the total returns of government securities. It can also invest a small portion in money market instruments in order to provide liquidity and reduce interest rate risk. However, the percentage of investments in money market securities will be decided after considering various factors such as the prevailing inflation and interest rate scenario, performance of corporate sector, general liquidity, etc. The fund will be benchmarked against GSEC 10 NSE Index.
Killol Pandya, Senior Debt Fund Manager, LIC Nomura MF, who is the fund manager of this fund said, “Currently, only two categories of gilt funds are available in the market – gilt short term and gilt medium & long term. While short term gilt funds have exposure to securities having average duration of less than eight years, medium and long term gilt funds typically invest in government securities having average maturity of 15 to 30 years. LIC Nomura G-Sec Long Term ETF will invest its corpus in government securities having average maturity of 8 to 13 years indicating a median average of 10 years, just in line with the 10 year G-Sec Gilt benchmark.”
On investment strategy, Pandya said that the fund will invest in government securities having high volume and weightage in the benchmark in order to provide liquidity to investors.
We asked advisors whether it is worth investing in this fund.
Vinod Jain of Jain Investments is of the view that the fund will work well for tactical allocation. “One can consider this fund to rebalance their tactical asset allocation. However, from a long term perspective, the existing actively managed funds can do well.”
Some advisors have a different view. Hemant Rustagi of WiseInvest Advisors said that risk averse investors should not consider such funds because such funds can be volatile.
Gilt funds have seen net inflows of over Rs.1,300 crore in the last three months on the expectations of a rate cut. Value Research data shows that medium and long term gilt funds have delivered an absolute return of 16% for the year ended September 2014.
