For fixed income investors, SBI Mutual Fund has announced the launch of SBI Long Duration Fund. The new fund offer (NFO) of the SBI Long Duration Fund will open on December 12, 2022 and close on December 20, 2022.
The fund will invest predominantly into government securities (g-secs) of longer tenure and money market instruments following a roll down strategy, with 7 years Macaulay Duration as the floor for reset. Based on the current market scenario, some portion of the portfolio may be invested in relatively shorter term G-secs, which can further enhance the overall liquidity of the portfolio.
It is an open-ended debt scheme that seeks to generate regular income in the long term by predominantly investing in debt and money market instruments such that the Macaulay duration of the portfolio is greater than 7 years. A relatively high-interest rate risk and moderate credit risk.
The Macaulay duration is the weighted average term to maturity of the cash flows from a bond, according to Investopedia. In other words, it is the weighted average number of years that an investor must maintain a position in the bond until the present value of the bond’s cash flow equals the amount paid by the bond.
Investors can benefit by investing in a high quality portfolio of government securities locking in yields at prevailing levels where the duration of the fund is in line with their investment goals. As compared to traditional investment avenues with a similar maturity, this fund also helps in reducing reinvestment risk while offering tax-efficient returns due to indexation benefit. Being an open-ended fund, it provides flexibility to investors to withdraw their investments anytime, at prevailing repurchase price. Investors with an investment horizon of greater than 3 years can avail Indexation benefits for better tax efficient returns. The fund would be an ideal choice to meet long-term investment goals regardless of near-term interest rate movements.
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“The policy rate cycle is closer to peak and inflation levels expect moderation in inflation levels. The forward looking estimates on positive real returns make a good case of locking in sovereign yields at current levels,” said DP Singh, Deputy MD & Chief Business Officer, SBI Mutual Fund in a statement.
Inflation is expected to moderate and fall back within the target band by end of FY23 and closer to target in FY24 policy rate cycle closer to peak, expected moderation in inflation and forward-looking estimates on positive real rates can make a good case for locking in sovereign yields at the current levels.
With RBI hiking repo rates, the yield curve in India has shifted upwards across tenors resulting in a 90-bps spike at the longer end.
The minimum application amount required is Rs 5,000 and in multiples of Rs. 1 thereafter.
Rajeev Radhakrishnan, CIO – Fixed Income, will be the fund manager of the debt portion of the scheme with Mohit Jain as the dedicated fund manager for overseas securities. The benchmark of the scheme is CRISIL Long Duration Fund AIII Index.
